Credit Cards and Campuses

A new era in the vexed relationships between colleges, credit cards and students begins Monday, when most of the new provisions of the Credit CARD Act of 2009 take effect. The law provides new protections to students and imposes new requirements on colleges and alumni groups that offer credit cards.

The law, which President Obama signed into law last May, was heralded by consumer advocates as putting long-overdue restraints on a too-loosely regulated industry. Among its most prominent features, the law bars retroactive rate increases and requires more notice of impending increases and limits how quickly banks can impose late fees. But it also includes a set of changes aimed at protecting young consumers -- and in some cases college students specifically -- from excessive credit card debt.

And while consumer advocates acknowledge that the law is far from perfect -- most visibly, it fails to include any cap on the interest rate credit card providers can charge -- they say that its campus-based protections will "make sure that [those responsible for] the country's economic future aren't mortgaging their own future," Tim Mensing, president of the student body at the University of Washington, said in a conference call held Thursday by the U.S. Public Interest Research Group, which lobbied heavily for the new law.

Several of the key provisions designed to protect young people restrict the behavior of, and impose requirements on, credit card providers.

The law amends the Truth in Lending Act to prohibit companies from giving credit to consumers under 21 unless they have a co-signer or have submitted evidence of their ability to make the payments. The new law also bars card issuers from offering students any tangible inducement for opening a credit card account at a campus event, and requires companies to include in annual reports to the Federal Reserve Board any "college credit card arrangement" they have.

The law imposes a set of requirements on colleges and universities (and their affiliates, like alumni associations, too). (Here are descriptions of the law from the National Association of College and University Business Officers and U.S. PIRG.)

Institutions themselves are prohibited from "knowingly" allowing the offer of gifts, coupons or other property in the marketing of credit cards to students.

In addition, colleges and universities are required to "publicly disclose any contract or other agreement made with a card issuer or creditor for the purpose of marketing a credit card." The business officers' group notes that rules crafted by the Federal Reserve Board to carry out that provision of the law say that institutions can satisfy the requirement either by posting them on the Internet or by making them available upon request, "as long as the procedures for making a request are reasonable and the agreement(s) are provided without charge in a timely manner."

This requirement applies to alumni associations that are structurally part of colleges and universities, but the law does not oblige independently incorporated alumni associations to make their arrangements public, according to the Council for Advancement and Support of Education. The group notes, however, that because credit card companies themselves are required to make public their contracts related to any program through which credit cards are issued to students, "[t]his means that any card agreement where a student has been issued a card would be subject to disclosure by the credit card company," including those at independently incorporated alumni associations.

Officials at NACUBO said they did not have a clear impression yet of how institutions and alumni associations might be choosing to comply with the disclosure requirement when it takes effect on Monday.

But Peter Osborne, a former Bank of America credit card official who is consulting with several universities and alumni associations on complying with the new law, said he believed that many institutions, faced with the option of proactively publishing their contracts or providing them on demand, may opt to "wait to see what the demand is before they respond."

While some colleges and universities have posted their credit card arrangements (like the University of Iowa's alumni association, which did so in response to a 2007 controversy over its sharing of student data to credit card marketers), institutions or alumni groups may not be particularly eager to disclose six- or seven-figure payments from credit card companies or the information they may share about students, Osborne said.

"They may not want alumni saying, 'They got $500,000 from Bank X, they don't need my $100 donation,' " Osborne said.

Given the likelihood that journalists or others may ask for such contracts, though, once institutions are required to provide them, colleges or alumni groups may decide to get out front and publish not only the contracts themselves, but information about what they have done with the money they've received, such as awarding scholarships or otherwise supporting students' educations. "What things have you been able to provide that you would not have been able to provide without those contracts?" Osborne said.

The new law also makes a recommendation (rather than imposing a requirement) that colleges provide education and counseling about credit cards and debt education as a regular part of any orientation program for new students. While many consumer advocates favor that sort of financial literacy education, inserting it into the already jam-packed first days or weeks of college may not be wise, argues Karen Gross, president of Southern Vermont College and a lawyer with an expertise on bankruptcy. (See her related essay here.)

"Educators know well that for education to occur, it must happen at a teachable moment," Gross writes. "For any complex subject like finance, there is no less teachable moment than orientation -- when students are seeking to settle into their rooms, meet their roommates, find classrooms, the bathroom and the dining hall."