How Credit Card Reform Affects Students

On February 22nd 2010, all provisions of the United States Credit Card Reform Act went into effect. With it comes many changes, including several which will directly affect students. Let’s take a look at what the new rules are:

Restrictions on Marketing: Up until this point, banks pretty much had free reign when it came to advertising credit cards at colleges and universities. We all remember those promotions for freebies they would use to get students to apply. Fortunately, that aggressive marketing will now be heavily regulated and they are no longer allowed to use incentives to get students to apply for their credit cards.

Students Must Prove Their Income: American Express was already notorious for being extremely strict with younger applicants, but now they will have to be even more strict. Why? Because from this point forward, all lenders must require student credit card applicants to prove they have the ability to pay their bill. That means they need a job which can be verified. This new law basically means the American Express Student credit card, which already had extremely strict lending requirements, will almost cease to exist from this point forward. If a student does not have sufficient income, then they will now be required to have their parent or legal guardian co-sign for them.

Transparent Financial Ties: Many people are surprised to learn that schools actually receive kickbacks from the banks for promoting their credit cards. As Doug Warner, associate editor at CreditCardForum.com puts it: “This was a clear conflict of interest. How could the schools have the students’ best interests at heart, when they also had a financial incentive to promote for the bank?” Fortunately from this point forward, all financial relationships between schools and lenders must be disclosed, whether that be a credit card company, a student loan company, or auto lender.