Limits on Credit Cards for College Students

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It will now be a little harder for credit card companies to target college students. New limitations due to the Credit CARD (Card Accountability Responsibility and Disclosure) Act of 2009 will come into effect across colleges on Monday.

The law, signed by President Obama in May, came about because of consumer worries about the level of credit card debt college students assume. The average student gets 25 to 50 credit card offers a semester and graduates with $3,173 worth of credit card debt.

The law prevents credit card companies from giving free stuff to students, giving cards to students who haven’t applied, and forces students (people under 21) who do apply to demonstrate income.

The new law is still disappointing to many consumer advocates, however. Personal finance expert Karen Gross, the president of Southern Vermont College, points out that there’s still no real limit on the interest credit card companies can charge students. Gross writes in Inside Higher Ed:

What is conspicuously missing is any cap on interest. Because of a 1978 Supreme Court decision, credit card interest rates are governed by the law of the state where the cards are issued; importantly, certain states have no usury caps on credit cards, and not surprisingly, these locations have become home to most credit card issuers.

So, while the Credit CARD Act addresses when interest rates can be changed, how payments can be allocated, and when the rates must be lowered, there is no ceiling on how high rates can go.

Sen. Bernard Sanders of Vermont tried very hard to include usury limits in the law, saying back in May that: “When banks are charging 30 percent interest rates, they are not making credit available. They are engaged in loan-sharking.” After heavy lobbying by the banking industry, Sanders’s efforts were unsuccessful.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer