Students wary of new credit card law

A new law intended to protect consumers — especially young consumers — from accumulating bad credit and sinking into debt has some students wishing the federal government would keep its nose out of their wallets.

 The Credit Card Accountability, Responsibility and Disclosure Act, which went into effect last week, has specific stipulations intended to protect college-aged Americans, including making it illegal for young people to sign up for a credit card without proof of their ability to manage paying off the card or a co-signer older than 21.

Although many college students attempt to establish credit accounts as a way to begin building their own credit score and financial profile, according to a Sallie Mae study issued in April, the average college student holds more than four credit cards and accumulates more debt each month because they are unable to manage or settle their balances. Because of this mismanagement, the study reported, college freshmen across the country have accrued a national debt of about $939, up from $373 just five years ago.

"Signing up for many cards, even ones that are not used, does reduce one's credit score," finance professor Elinda Kiss said.

But for some students, these new restrictions seem unnecessary and burdensome.

"It's a bad idea," junior journalism major Kayla Cross said. "Some students might be irresponsible, but I've had a credit card since I was 18, and I've built great credit and was able to lease an apartment because of it."

Junior mathematics major Elizabeth Gardner said she's concerned students won't be able to "build credit for their future."

"I personally have had a credit card for a number of years, both as a co-signer with my mom and on my own," Gardner said. "I believe this bill will be more detrimental than helpful."

Gardner, whose mother is a CFO and constantly talks to her and her friends about financial responsibility, ceded that some of her peers are financially ignorant and can be easily misled by credit card companies. She said perhaps institutions of education should step in and offer students more instruction on how to handle their personal finances, "both in high school and college."

Kiss said having a class to help young people learn to manage money wouldn't be a bad idea.

"What I would like is for teens to have a course, perhaps in high schools, on personal finance," Kiss said. "I know people in their 20s who cannot balance their checkbooks and are constantly overdrawn."

The bill also provides limitations on how credit card companies can court students on college campuses. Banks must now provide a reason for promoting their cards on college campuses and at university-themed events. It also prohibits banks from giving out promotional items — such as free T-shirts or coupons for food — to entice students to sign up.

Economics professor Lawrence Ausubel, who testified for the bill in Washington, said the basic rationale was for it to stop the over-aggressive promotion of credit cards on college campuses that would often include free giveaways and misleading rates intended to attract college students' business.

"Students get loaded up on debt,"  Ausubel said. "That is why some students have to work large amounts of hours and could eventually stop taking classes."

farrell@umdbk.com