How CARD Act Affects Young Adults

Under 21? 

The credit card reform law passed in 2009 will help you manage credit by putting restrictions on you, credit card issuers, and colleges/universities. Here’s how.

Cosigner or proof.

 If you’re under age 21, credit card companies can’t issue you an account, unless: 

1.    You have the signature of a co-signer, co-borrower, or guarantor, such as a parent, legal guardian, spouse, or anyone older than 21 who has the means to repay your debts;
     --OR-- 
2.    You must prove that you have the ability to independently repay your debts.

Restrictions on credit limits. If you’re under the age of 21 with a co-signer, the card issuer can’t increase your credit limit on the account without the cosigner’s written agreement to assume liability for the increase.

Got offers? The Credit CARD Act of 2009 bans prescreened credit card offers to anyone under 21. However, if you sign up for loyalty or rewards programs (e.g., frequent flyer programs), join unions or nonprofit groups, or sign up for freebies and provide a merchant with your mailing address, it’s likely they will start sending you prescreened credit card offers; this practice is not banned by the Credit CARD Act.

In college?

College/issuer contracts made public. The new law requires colleges and universities to publicly disclose any contracts or agreements they make with card issuers or creditors for the purpose of marketing credit cards.

Forget the t-shirt. On or near campus, card issuers and creditors no longer can offer college students any tangible item—including t-shirts, candy bars, pizza, and more—just to get you to apply for a credit card, even if the card is sponsored by or related to the college or university. This is not a bad thing—it costs less in the long run to buy the t-shirt at the bookstore. Typically those “free” t-shirts end up snaring unsuspecting students into using credit cards with high interest rates and fees.  

Gimme education! Colleges and universities are encouraged to offer credit card and debt education—and financial counseling sessions—as a regular part of new student orientation.

Reports required. With respect to credit cards issued to students on college campuses, the new law requires creditors to submit a report to the Federal Reserve Board, outlining the terms and conditions of all business, marketing, and promotional agreements—as well as college affinity card agreements—with colleges and universities, alumni organizations, or foundations. These reports may be reviewed by the Comptroller General of the U.S. and used in reports to Congress.

Have a pulse?

You need to know this stuff whether you’re 18 or 81.

Restrictions on interest rate hikes

Interest rate is frozen for first year you have the card. After that, interest rate increases can only be on new purchases. However, there are exceptions. If any of these apply to you, your rate could go up even on the outstanding balance:

• When the index tied to a variable-rate card goes up.
• If you have a limited-time introductory rate; after that, the rate can increase.
• When you’re more than 60 days late on your payments.
• When you have either completed or defaulted on a workout agreement.

45-day notice on rate changes. Card issuers must generally provide a 45-day notice before they apply an interest rate increase to new transactions.

• Required notice about right to cancel. You must be given the option to cancel your card before any changes take effect … changes to annual or late fees. However, the right to cancel does not apply to: (1) increase in minimum payment; (2) increase in APR; (3) change in balance calculation method; and (4) when your account is 60 days delinquent.
• Two-cycle billing now banned. Issuers no longer can apply interest charges to two full cycles of card balances, only on the most recent billing cycle’s balances. That’s very good news for a lot of consumers who carry a balance from month to month.
• No “teaser” or introductory rates for less than six months. That means no more three-month introductory offers. But remember: If the offer states “no interest for six months” and you don’t pay off the entire balance in full before the introductory period ends, you’ll be charged interest on the entire amount from the date of purchase.

Already have cards and wish you could consolidate or pay them off? Try our calculators to help.

Restrictions on fees

• 45-day notice on fee changes. This is required if they change any fee, such as annual fee, cash advance fee, or late fee. 
• You must “opt in” to over-the-limit fees. If you don’t opt in and then charge something that takes you over your limit, that charge may get denied. If you don’t opt in to over-the-limit transactions and the card company allows one to go through, it cannot charge you an over-the-limit fee. Further, if you do opt in to allowing transactions that take you over your credit limit, your card company can impose only one fee per billing cycle.
• Penalty fees capped at $25. But wait—there’s an exception: If you are chronically late with your payment, you could pay a penalty of up to $35. The good news: If you’re late with a $20 minimum payment, the penalty fee cannot exceed the dollar amount of the violation—in this case, $20. 
• No “pay outstanding balance” requirement. You can’t be required to repay the entire balance if you cancel your account because of changes the card company makes to the terms of your account.
• No “late fees” if issuer delays crediting your payments. 
• Total fees cannot exceed 25% of card’s initial credit limit. 

Late with your payment? If you’re more than 60 days late on a payment, the penalty rate kicks in. According to a recent study by The Pew Health Group, the median penalty interest rate is 29.99%. However, there’s relief. If you pay on time for six months, the card issuer has to restore your prior interest rate. 

Better billing practices

• Periodic statement must be mailed or delivered at least 21 days before due date.
• Payments applied to highest interest rate first. If you have a card with several different interest rates (e.g., you took out a cash advance with a higher rate), then your payments over the minimum due must first be applied to balances with the highest interest rate.
• Payment due date must be same numerical day each month. Also, the cut-off time for payment cannot be earlier than 5:00 p.m. on your due date, and if your payment due date falls on a weekend or holiday, you have until 5:00 p.m. the next business day to pay. The issuer cannot treat the next business day as “late.”
• Gift cards, gift certificates (nonpaper), and general-use prepaid cards
• Goodbye sudden expirations! Gift cards cannot expire before five years from the date of purchase or when money was last loaded onto a card—whichever is later.
• Fees prohibited, with exceptions. You can’t be charged fees for the first 12 months. You can use your prepaid or retail gift card for five years from the date of purchase—or whenever money was last added to the card. And, as long as you’ve used the card at least once in the past 12 months, you can’t be charged an “inactive” fee. After 12 months of inactivity, though, you can be charged one fee per month.

Disclosures

• Minimum payment disclosure. Your issuer must tell you the consequences of only making the minimum payment each month—how much interest you’ll pay and how long it will take to pay off the debt.
• Repayment in three years. Your statement must contain a chart that shows how much you need to pay each month to repay the balance in three years. (This chart is not required if minimum payments are enough to repay the balance in less than 36 months.)
• Who to call? Issuers must disclose a toll-free number to help you locate credit counseling services.

If you've got poor credit or no credit, MIT FCU does have personal loan programs that may be able to help you get back on track. Read more about our secured personal loans.

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