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Jul 21, 2009
Categories: Consumer Lending

Credit CARD Act - Section 304

Posted by Steve Van Beek

Section 304, which applies only to credit card accounts, adds subsection (f) to Section 140 of the Truth in Lending Act.  The section become effective February 22, 2010.  

Initially, the section requires institutions of higher education to publicly disclose any contracts or agreements with credit card issuers for the marketing of credit cards.  If your credit union has an agreement with a college or university, be aware that the college or university will need to make that agreement public and transparent.  

"Freebies" Prohibited. Subsection (f) prohibits the offering of gifts or giveaways to college students in exchange for applying for a credit card.  The section specifies three places where a card issuer is prohibited from offering "freebies" to students:
  • On the campus of an institution of higher education;
  • Near the campus of an institution of higher education (as defined by the Federal Reserve); or 
  • At an event sponsored by or related to an institution of higher education.   
The Federal Reserve will, most likely, issue regulations to clarify the prohibitions on offering "freebies" to college students for credit card sign-ups.  If you credit union conducts promotions at colleges or universities, you will have to make sure your process does not involve offering "any tangible item" to induce sign-up.  My guess is that "any tangible item" will be interpreted as broad as it sounds - without any de minimis exception.  

Also, keep in mind that Section 109 of the Credit CARD Act requires a "Consideration of Ability to Repay" before opening a credit card account.  Additionally, Section 301 requires a co-signer or a determination of an independent financial means of repaying the obligation. 

Best Practices. Subsection (f) also includes a section titled "SENSE OF CONGRESS" which appears to be guidance or "best practices" for institutions of higher education.  Congress did not appear to mandate these requirements, but the Federal Reserve could in its regulations.  Congress believes the following would be useful practices:
  • That a card issuer notify the institution of higher education of the location of a marketing event;  
  • That the institution establish limitations on the number of locations on the campus at which the marketing of credit cards can take place; and
  • That credit card and debt education and counseling sessions be offered during new student orientation. 
Remember that some of these requirements are on the institution of higher education - but they could impact the credit union's future marketing activities to college or university students.  

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