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As millions of students return to college in the next few weeks, credit card issuers will be making some of their final pitches to lure them as potential cardholders before a new law severely restricts such promotions.
Student credit cards have long been a favorite, and controversial, way for issuers to acquire customers at the beginning of their financial lives. Affinity relationships with schools and alumni associations also have proven lucrative. But by February the opportunities will be severely narrowed by the Credit Card Accountability, Responsibility and Disclosure Act, which will restrict the industry's ability to market or issue cards to anyone under the age of 21, reports American Banker, a CCR Newsline sister publication.
David Thompson, a member in the Cleveland office at the law firm McGlinchey Stafford PLLC and a former counsel for Fleet Financial Group Inc., says, "For this class of people, people under the age of 21, creditors are going to have to have a different structure" to process applications.
But issuers "try to make things as streamlined and consistent as possible … and I don't think many issuers are going to show a great deal of patience" for adding separate procedures for a subset of applicants, he told American Banker. Hence, lenders may be "disinclined from extending credit to this class of people," he said.
Most major issuers would not discuss their specific plans for compliance with the law's restrictions on issuing cards to those under age 21. But Nessa Feddis, a senior federal counsel for the American Bankers Association, predicted compliance will be too expensive and difficult for some companies to continue issuing cards — on campus or off — to any young consumers.
Most card companies already have started making some changes to other practices to prepare for the law or its effects. American Express Co. and Discover Financial Services, for example, said this month that they would discontinue the widespread practice of charging overlimit fees rather than comply with the law's expensive new "opt-in" requirement for such fees. Aug. 20 was the deadline for some of the law's other requirements, including a 45-day notification of interest rate increases and a 21-day grace period between when a statement is mailed and when it is due.
But so far, while several issuers (Discover, AmEx and Capital One Financial Corp.) said that they do not market on-campus, none have taken the lead to pull back from lending to consumers under 21.
Feddis and others attributed this hesitation to a clause in the new law that requires further rulemaking from the Federal Reserve. The law requires anyone applying for a card while under the age of 21 to have either a legal adult co-sign the application, or to prove they can handle the debt themselves. She said the Fed is expected to issue rules by November defining that "independent means of repaying."
