When the Credit CARD Act goes into effect in February, students should expect to see changes in their ability to obtain credit cards and in their day-to-day banking, officials said.
The federal legislation, bringing numerous consumer protections aimed at the banking industry, also includes provisions relating directly to college students. The act is part of a government effort to address the growing problem of debt in the student population.
The biggest change students will see, said economist Matthew Croucher from the W.P. Carey School of Business, will be that students will have more difficulty obtaining credit cards.
The act requires people under 21 to either show proof of their ability to pay off debt or have access to a credit-worthy co-signer in order to get credit cards.
Other changes include a ban on free giveaways — often T-shirts or free meals on college campuses — that vendors offer as incentives to sign up for cards.
The expected drop-off in vendors may be because of other changes that limit the money creditors can make off students.
“The profit margin per individual student is going to be affected by the act, so I think that’s why you are going to see a reduction in people trying to sign up students,” Croucher said.
Students who get into debt with credit cards are usually using them in the wrong way, Croucher said.
“The danger is treating your card as income rather than what it really is, which is enabling you to smooth out payments when there’s a shock to your expenditures,” he said.
Jerry Kingston, an economics professor at W.P. Carey, agreed.
“If [students] use their credit cards responsibly, with the intent of only using them as a substitute for checks or cash, they will be much less likely to be subject to high fees and accumulating debt,” he said.
Other provisions include opting in to overdraft fees assessed by banks, increased disclosure of terms and conditions and more notice of due payments.
However, don’t expect to see wholesale changes in the way your bank does business starting in February. With the legislation on the horizon, banks have been rushing to change their strategies in order to offset some of the revenue they expect to lose because of the act, Croucher explained.
For students who wish to start responsibly building their credit now, Croucher suggested that students use pre-paid credit card accounts and save a portion of their monthly income.
“If you can show evidence that you are not just blowing your whole paycheck, obviously that is going to provide a track record to your bank that you are a responsible individual,” he said.
“When you get your first credit card, make sure that if you use it, you use it such that you can pay it off,” Croucher said. “Don’t be late on your payments, don’t get into difficulties where you can’t make those payments, because then as you get on the ladder, it is a lot easier to move up the ladder in terms of credit scores.”
Reach the reporter at dana.sheaff@asu.edu
