The Federal Reserve Board on Tuesday proposed rules amending Regulation Z (Truth in Lending) including provisions that make it harder for those under 21 to obtain a credit card and restrict credit card marketing to college students.
The proposed rule will be published in the Federal Register in the near future and provides guidance to implement provisions of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2010 that are effective on Feb. 22, 2010. The bill includes several consumer protection provisions that affect higher education institutions and the students they serve.
The proposed rule prohibits a creditor from issuing a credit card to consumers under the age of 21 unless they have a cosigner older than 21 or the underage consumer can show they have the means to make required payments.
The Credit CARD Act also limits credit card marketing to college students by limiting a creditor's ability to offer students any tangible item to induce the student to apply for credit. Specifically, the law prohibits such offers:
- on the campus of an institution of higher
education
- near the campus of an institution of higher education
- at an event sponsored by or related to an institution of higher education
The proposed commentary in the rule would provide guidance to assist creditors in
complying with the rule by clarifying that "tangible item" means a physical item (such as a gift card, t-shirt, or magazine subscription) and does not include non-physical items (such as discounts, rewards points,
or promotional credit terms). The proposed commentary would also clarify that
a location that is within 1,000 feet of the border of the campus of an institution of higher education (as defined by the institution) is considered near the campus of that institution.
The proposed commentary would clarify that an event is related to
an institution of higher education if the marketing of such event uses words, pictures, or
symbols identified with the institution in a way that implies that the institution endorses
or otherwise sponsors the event.
The proposed rule would also implement
the provisions of the Credit Card Act requiring institutions of higher education to
publicly disclose agreements with credit card issuers regarding the marketing of credit
cards. The proposal would state that an institution may comply with this requirement by,
for example, posting the agreement on its Web site or by making the agreement available
upon request.
In addition, the proposed rule would:
- Protect consumers from unexpected increases in credit card interest rates by generally prohibiting increases in a rate during the first year after an account is opened and increases in a rate that applies to an existing credit card balance.
- Require creditors to obtain a consumer's consent before charging fees for transactions that exceed the credit limit.
- Limit the high fees associated with subprime credit cards.
- Ban creditors from using the "two-cycle" billing method to impose interest charges.
- Prohibit creditors from allocating payments in ways that maximize interest charges.
"This proposal is another step forward in the Federal Reserve's efforts to ensure that consumers who rely on credit cards are treated fairly," Federal Reserve Governor Elizabeth A. Duke said in a statement. "The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts."
In December 2008, the Federal Reserve adopted final regulations prohibiting unfair credit card practices and improving the disclosures consumers receive in connection with credit card accounts. This proposal would amend aspects of those regulations to incorporate provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), which was enacted in May 2009.
The proposed rule represents the second stage of the Federal Reserve's implementation of the Credit Card Act. On July 15, 2009, the Board issued an interim final rule implementing the provisions of the Credit Card Act that went into effect on August 20, 2009. The proposed rule would implement the provisions that go into effect on February 22, 2010. The remaining provisions of the Credit Card Act go into effect on August 22, 2010 and will be implemented by the Federal Reserve at a later date.
Posted 10/01/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
