Q: How will the recent changes to credit card company practices affect college students?
A: I worked in the U.S. Senate to help pass the Consumer Credit Act, which became law on May 19, 2009. Specifically, an amendment I proposed was included to help curb some of the behind-the-scenes practices credit card companies have used on college campuses to entice students to take on debt. The changes, which went into effect in February, require credit card companies and educational institutions to be transparent about their agreements. Specifically required in the law is credit card companies reporting how much money is given to schools and alumni associations through these agreements and what is received from the universities in exchange. The law also requires universities to disclose any credit card marketing deals made with issuers. Credit card companies also now are prohibited from offering gifts to students in exchange for applying for credit cards. In addition, the new law forces people under 21 years of age to show their ability to pay the debt. If an ability to pay can’t be demonstrated, then a cosigner is needed to open the account and agree in writing to any increase in the credit limit. This problem hits close to home in Iowa. Two years ago, The Des Moines Register uncovered information showing that both Iowa State University and the University of Iowa had participated in lucrative arrangements with credit card companies. Students should have access to the facts. Students may need credit cards, and agreements can be entered into, but the arrangement is now transparent, so students know a lot a lot more about what they’re signing up for.
Q: What other credit card changes are taking place?
A: According to the Federal Reserve, the new law requires that credit card companies send a notice 45 days prior to increasing the interest rate, changing certain fees and making other significant changes. Credit card bills also now must include information about how long it takes to pay off the balance paying only the minimum payment. Interest rates can’t be increased for the first 12 months of the account unless the payment is more than 60 days late, the credit card has a variable interest rate, or the introductory rate, which must be in place for at least six months, reverts to the “go-to” rate the credit card company disclosed when offering the credit card. Increased interest rates can only apply to new charges. The old balance will continue at the old interest rate. The user must opt-in with the credit card company to allow transactions that will take the user over the credit limit. If a user does “opt-in” to these types of transactions, the credit card company can only impose one fee per billing cycle. Fees can no longer exceed 25 percent of the initial credit limit, however this doesn’t apply to penalty fees, such as late payments fees. Credit card bills must now be mailed at least 21 days before the payment due date which should be the same day each month. Payments made must now be directed to the balances with the highest interest rate first. Interest charges can now only be imposed on balances in the current billing cycle. Iowans looking for more information about the new credit card changes can also visit http://www.federalreserve.gov/creditcard/.