New Credit Card Rules That College Students and Teens Should Know
Submitted by Wade Nembhard
There are some very important new rules issued by the federal government about the way credit cards are issued, maintained and how that debt is paid back to the credit card companies. Just about everyone holding credit from the large banks will be affected by this. It is important to know that college students and teens will now have to pay close attention as they are often misinformed or lack the financial knowledge needed initially when getting their first line of credit from a card company.
Some very unsavory and shady credit card practices that have trapped millions of people into spiraling debt previously included, unexpected rate hikes, over the limit fees, and double-cycle billing. Thankfully these practices are now officially history and many student card borrowers can now breath a sigh of relief. But its important to note that with the new rules established, there also arise a few loopholes that credit card companies will once again exploit to their advantage.
On Feb. 22, 2010, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) took effect. It sets up the most consumer-protectiverules the United States has seen in credit card history.
Finance Charges, Interest-Rate Hikes and Notifications
- No rate increases for the first 12 months after opening an account.
- No more double-cycle billing.
- Rate increases can only be applied to new charges.
- Annual and application fees cannot exceed 25% of your initial credit line.
- No more over-limit fees, unless the card holder opts in.
- A six-month minimum promotional-rate period.
- No fees to make credit-card payments online or over the phone, unless you make a payment on your due date.
- Must give 45-day notice of pending rate or fee hikes or any other significant changes to credit-card terms.
What are the Exceptions and Credit Card Loopholes?
- Double-cycle billing, although prohibited, can technically still exist for credit cards that don't have grace periods.
- Credit crad issuers can hike their rates if you pay 60 or more days late.
- Some banks have already found a way around the rate-hike issue, by increasing card users' regular interest rates to as high as 29.9% and then refunding a part of that rate for each month that the customer pays on time.
- Issuers have been calling consumers asking them to opt in for over-limit fees in exchange for lowering that fee, says Chi Chi Wu, a staff attorney with the National Consumer Law Center, a consumer advocacy group. What they're not saying is that if people don't opt in, the transaction will be denied and they will not be charged over-limit fees in the first place, Wu says.
Monthly Billing Statements, Payments, and Disclosures
- Monthly Billing statements must be sent 21 days before the payment due date.
- Your due date should be the same date each month.
- Payments above the minimum must be applied to the highest-rate balance first.
- Payments are considered on time when received by 5 p.m. on the due date or the next business day after a holiday or weekend.
- Statements must include a warning that by making only minimum payments you will pay more interest and it will take you longer to pay off your debt, as well as a toll-free number to call if you want to be referred to a credit-counseling service.
- Each monthly statement must also include information on how long it would take you to pay off your balance if you make minimum payments only and the total you'll pay, including interest and principal; and how much you need to pay each month in order to pay off your balance in 36 months and the total you'll pay, including interest and principal.
What are the Exceptions and Loopholes?
If you make a purchase under a "deferred-interest" plan (such as "No interest for six months," for example), the company may let you choose to apply extra amounts to the deferred-interest balance. Otherwise, for two billing cycles before the end of the promotional period, your entire payment must be applied to that balance. Carrying a "deferred-interest" balance is a risky proposition altogether, says Wu: Unless the balance is paid in full over the specified period, the company will charge all interest retroactively once the promotional rate expires. "We think deferred-interest plans should have been banned," Wu says.
College Students and Young Adults
- No credit-card marketing and freebies on college campuses.
- No credit-limit increases if you are under 21 and have a co-signer without that co-signer's permission.
- No credit cards for college students unless co-signed by a parent or they can demonstrate "ability to pay."
What are the Exceptions and Loopholes?
- Issuers are not allowed to give out freebies for signing up for a credit card on or near a campus -- which still allows them to set up shop near popular off-campus venues and offer freebies to everyone, whether or not they apply.
- Issuers will likely start appealing to parents to co-sign their children's credit cards. And the Federal Reserve has specified that issuers have the option of keeping the parent on the hook even after the young person turns 21, Wu says. "If that younger person keeps the credit card for 20 years, the co-signer is liable that whole time."
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Comments
And I hate the greedy companies that make them.
George Bush actually had done the opposite and signed a bill into law that pretty much gave the credit card companies so much more power to abuse consumers. We were screwed royally by that president and his love for big corporations.