New credit card law could hurt students

By Andrew Sheeler
Sun Star Reporter

A law passed last year by Congress in response to complaints of unfair credit card company practices may have the unintended consequence of further limiting students’ access to educational loans.

Signed into law by President Obama in April of 2009 and scheduled to go into effect on Feb. 22, The Credit Accountability, Responsibility, and Disclosure (CARD) Act was meant to reform credit lending practices by limiting the powers of lenders to unfairly manage their customer’s existing accounts while restricting the marketing of credit cards to borrowers that cannot afford them.

As part of the act, anyone under the age of 21 applying for a credit card will be required to meet certain criteria. First, they must have an adult co-signer. The adult must not only sign off on the application for the card but also on any changes made to the credit line amount. Second, the applicant will be required to document how balances on the account will be paid. This provision of the law was designed to protect young borrowers from predatory lending practices by credit card companies, but it may make it even harder for students to qualify for educational loans. The Alaska Student Loan Corporation (ASLC) now requires a minimum credit score of 680 from applicants for some loans. Requiring an adult co-signer may prevent some students from using credit cards to build up their credit ratings.

Victoria Smith, a history major at UAF, is one of those students who weren’t able to get a loan with the ASLC. Smith, a junior, goes to school on a tight budget. Smith receives Pell grants, Alaska supplemental student loans and other assistance but that is only enough to pay for her schooling.

“I solely depend on the loans and grants I get,” Smith said. When she was denied a loan last semester because of a low credit rating, she had to choose between dropping a class and being able to afford groceries.

Smith was advised to get a credit card to start establishing credit. She applied for one but was turned down because neither she nor her co-signer (her mother) had any credit history. Smith recently turned 22 years old, so the provisions of the CARD act don’t directly affect her. But her story could be a harbinger of more loan denials encountered by other, younger students in a similar situation.

The CARD Act was co-sponsored by Sen. Mark Begich, and the entire Alaska congressional delegation voted in favor of it. Julie Hasquet, a spokeswoman for Begich, said “The reform act is about protecting the consumer. In order to acquire a credit history, one can also have a history with a landlord that shows on-time payments, and a history of paying bills, including utilities, cell phone, etc.” She added that her office has not received any complaints from Alaskans or from ASLC about either the minimum credit requirement for loans or the provisions of the CARD act.

Hasquet defended the law by pointing out that it protects consumers. “They [credit card companies] can no longer issue ‘any time, any reason’ rate increases, no more double-cycle billing, promotional rates must be good for at least 6 months,” she said, “and they can no longer target young people with applications who have no ability to pay.”

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