WASHINGTON (8/17/10)--The fall semester is about to begin at many colleges across the country, and the Credit Union National Association (CUNA) wants to remind credit unions about new constraints on their lending and marketing programs. “Changes to Regulation Z that became effective last February will have a major impact on credit cards issued to college students,” said Mike McLain, CUNA senior compliance counsel and assistant general counsel. “Reg Z, which implements the Truth-in-Lending Act, generally prohibits a credit union from issuing a credit card to anyone under the age of 21 unless there is a co-borrower, cosigner or guarantor over the age of 21 on the card who is jointly or secondarily liable and has income sufficient to make the required payments,” explained McLain. The only exception to this rule is if the underage borrower can document that he has an independent means to make the required minimum periodic payments based upon his income, assets and current obligations.” The revised Reg Z also addresses increases in lines of credit provided to borrowers under 21, McLain added. “If a credit card is issued to an underage borrower along with a joint party, then the credit limit may not be increased without first obtaining the written agreement of the joint party that he or she will assume liability for the increase.” February amendments to Reg Z, required by the 2009 Credit Card Accountability, Responsibility, and Disclosure (CARD) Act , also restrict credit union marketing programs on college campuses. Credit unions can’t offer a college student any tangible item or “gift” to induce the student to apply for a credit card or any other type of open-end loan if the offer is made:
* On the college or university campus; * Near the college or university campus; or * At an event sponsored by or related to the college or university.
McLain explains that the Federal Reserve Board, in charge of writing Reg Z, has defined a “tangible item” as any physical item such as a gift card, t-shirt, magazine subscription or similar item. Tangible items do not include non-physical inducements such as discounts, reward points, or promotional credit terms. Furthermore, a tangible item that is offered to any college student, and which the student will receive whether or not he or she applies for or opens a credit card account or other open-end loan, is not prohibited by the final rule. For example, refreshments or pens offered to a college student on campus that are not conditional on whether the student applies for a credit card account would not violate the rules.