|Card issuers told: |
Stay far afield from students
The Credit CARD Act of 2009 bans card issuers from offering pizza, T-shirts, hats and other freebies in exchange for signing up for a credit card on “or near” campus. How close is near? On Sept. 29, the Fed clarified: 1,000 feet — a distance of almost three football fields.
Card issuers can’t market credit cards within 1,000 feet of a college campus, the Federal Reserve said Tuesday.
That’s just one of many Credit CARD Act-related clarifications the Fed announced. The central bank — continuing its efforts to protect young consumers from predatory card marketing — also provided further guidance on who can act as a co-signer for someone who’s under 21 years of age, what items issuers cannot give out to get someone to sign up for a credit card and more.
It is common practice for the Fed to follow up the release of a law, especially one as sweeping as the Credit CARD Act, with clarifications of some of the law’s most vague language. While the Fed did shed light on some of the vagaries of the act, it failed to clarify others with quite the precision hoped for by college administrators and consumer advocates.
Here’s a rundown of how the Fed fared on its college quiz:
Q: Card issuers will be prohibited from marketing credit cards “near campus.” How is “near campus” defined?
A: The Fed defines “near campus” as “within 1,000 feet of the border of the campus of an institution of higher education, as defined by the institution of higher education.” But it extends the forbidden zone to include “related events” such as concerts and sporting events.
Quoting the Fed: “An event is related to an institution of higher education if the marketing of such event uses the name, emblem, mascot, or logo of an institution of higher education, or other words, pictures, symbols identified with an institution of higher education in a way that implies that the institution of higher education endorses or otherwise sponsors the event.”
That likely means college football bowl games are off limits for card merchandisers, too.
Q: What items are included under “prohibited inducements?”
A: The act bans any “tangible item … such as a gift card, a T-shirt, or a magazine subscription” but does not prohibit discounts, rewards points or promotional credit terms to attract customers. The prohibition applies to mailings to students living on or near campus as well.
On the other hand, if the tangible item, such as a refreshment, is offered to a student regardless of whether they apply for a card, it is not considered an inducement.
The prohibitions apply solely to tangible offerings to college students on or near campus or at an event sponsored by an institution of higher education. The card issuer, however, must have “reasonable procedures” in place to determine if an applicant is a college student before giving them the tangible item.
Q: Who can be a co-signer, required by applicants under age 21?
A: The Fed struck all reference to parents, legal guardians and spouses included in the original language, reasoning that simply any individual over 21 years of age “having a means to repay debts incurred by the consumer” may qualify as a co-signer.
Attention, college students 21 and older: Expect to be hit up by younger sorority sisters and fraternity brothers at co-signing parties.
Q: Who can request a credit line increase?
A: The cardholder can make such a request with the written permission of their co-signer, who agrees to assume liability for the higher limit. The permission form is not required if the co-signer makes the request however.
Q: What does the phrase “an independent means of repaying” credit card debt mean?
A: Those younger than 21 must either secure a qualified co-signer, or provide financial information “indicating an independent means of repaying” their credit card debt. What’s that mean?
According to the Fed, credit card issuers can request proof of ability to make minimum monthly payments that includes: salary, wages, tips, bonuses and commissions from full- or part-time jobs and self-employment as well as income from interest, dividends, child support, alimony payments, retirement benefits and public assistance. Card issuers may request this proof from co-signers or under-21 applicants. See “Want a credit card? Prove you can pay the bill” for more details.
Q: Does a secured credit card qualify as an “independent means of repaying?”
A: The Fed doesn’t weigh in on this specifically.
Q: Does the Credit CARD Act cover lines of credit?
A: No. Although Title III referenced both credit card accounts and “open-end consumer credit plans,” such as lines of credit, the Fed excluded the latter because the act applies solely to card issuers.
Q: Are the requirements on card issuers triggered when they issue a card or open an account?
A: Open an account. Quoting the Fed: “Otherwise, the provision could be construed to require card issuers to evaluate a cardholder’s ability or obtain the signature of a co-signer even when a card is being sent to an existing cardholder to replace an expired card.”