By Eric Fortier
While the Credit Card Act of 2009 went into effect in February without notice by students at Mercy College, the new law will actually protect co-eds from themselves when it comes to racking up credit card debt.
The legislation reforms the credit rules to protect the consumer from being bullied by the credit card companies, while also helping consumers not to get further into debt.
The most notable reform is the new age requirement of 21 years to apply for a card, unless a parent is a cosigner. With this act, it is also now unlawful for schools to allow these companies access to the student body within one thousand feet (the length of 3 football fields) without disclosure to the public and the Federal Reserve.
“It reminds you of drug dealers and the drug free school zones,” said Dr. Thomas Milton, a Professor of business at Mercy for the past 25 years.
“There really is not a huge difference between getting addicted to credit or drugs. Both can kill you.”
Milton recalls decades ago when everyone would pay for things with cash, not credit. It hasn’t been a long time since credit cards were introduced, 44 years ago.
First, there were charge cards like Diner’s Club and American Express back in the 1950s. Charge cards allowed consumers to make a large purchase, yet when the bill arrived a month later, it had to be paid in full.
Milton said, “These were really called Travel and Entertainment cards, or T and E cards for business expenses.”
The general-purpose credit card was established in 1966 by the Bank of America, which later became Visa, according to creditcards.com. Credit cards allowed consumers to have a revolving balance and only required them to make a minimum payment when the bill came.
This soon gave rise to other companies and banks getting in on the credit card business, ultimately leading us to the “credit crunch” of 2008. Companies would abuse the consumer and resort to tactics like charging high fees, double billing (the act of billing a consumer finance charges twice in the same month), and raising interest rates without notification.
“One of the biggest mistakes people make with credit cards is not understanding the agreement,” said Milton, “while also spending more money than they actually have.”
In an anonymous poll of 30 students at Mercy College, most students opened their accounts at age 18 primarily spending on gas, food and clothing. Several students polled said, “I am not sure what the Credit Card Act is.”
The Credit Card Act includes some important new rules, notably:
Age Restrictions: Students can no longer get credit cards unless the parent cosigns or they can demonstrate the ability to pay for it. No credit-limit increases without cosigner approval.
Distance: No marketing credit cards or giving out freebies within 1000 feet of a college campus.
Billing Statements: Must now show how long it will take consumer to pay off the debt owed, or the length of time it will take if making the minimum payment and how much to pay if you want to pay it off in three years.
Standard payment dates: Bills must be delivered 21 days before payment date. Due dates are now either the 15th or the last day of the month. If due date is on a weekend or holiday consumers have until the next business day. Payment cut off time is now moved to 5 p.m.
Payments: If a user pays more than the minimum balance due, the excess payment applies to the balance with the higher interest rate, such as a cash withdrawal, which is always at a higher rate.
Over the Limit Fees: Consumers must authorize over the limit transactions, otherwise the transaction could be turned down. If the charge is allowed to go through, the consumer cannot be charged a fee for over the limit.
Interest Rates: The consumer must receive a notice 45 days before any rate increase, changes in fees (annual, cash advance, or late), or any other significant changes to card terms. No interest rate can increase for the first 12 months after opening an account, but this rule has exemptions. It can go up if the payment is 60-days late, the introductory rate reverts to the “go-to” rate disclosed at opening of the account or if the card has a variable interest rate tied to an index.
Other specifics of the Credit Card Act can be found at www.federalreserve.gov.
Milton thinks the new legislation is making the banks more responsible by preventing unfair practices. While it will make it harder for students to open credit card accounts, the act will make it more difficult for irresponsible people to get into trouble. The act will also make managing debt easier.
“Mercy College should offer students workshops on personal finance to help them understand their credit,” Milton offered, “The problem is only the responsible students would come.”