In a press release September 29th, the Federal Reserve introduced rules for implementing the Credit CARD Act of 2009. Specifically, the rules provide strategies for credit card issuers to follow in order to comply with the terms of the Credit Cardholders’ Bill of Rights, which was enacted earlier this year and takes full effect in 2010.

The rules outline appropriate actions for the following areas.

Proof of Income at Application

Currently, most credit card issuers do not require applicants to provide proof of income when they apply for cards. But the Credit CARD Act calls for proof that applicants will be able to make timely payments, so the Fed’s new rules require potential cardholders to show:

• Income from salary, wages, bonuses, part-time work, military work, self-employment, tips, commissions and seasonal/irregular jobs
• Income from investment dividends, interest, retirement benefits, public assistance, child support, alimony and other types of maintenance
• Savings accounts and/or investments
• Credit reports and/or credit scores

These rules address problems in the credit card industry that also manifested themselves in the subprime mortgage lending industry during the real estate boom that peaked in 2007.

Restrictions on Younger Applicants

Because credit card debt for college students has gotten attention as it has increased in recent years (the average 2008 graduate owed $3,173, according to Sallie Mae), the Fed’s proposed regulations address this issue as well.

Specifically, the Federal Reserve’s guidelines indicate that:

• Credit card companies cannot lure college students with free items in exchange for filling out an application within 1,000 feet of a college campus.
• Card issuers can still offer free items to college students, but they may not make receipt of these items contingent upon filling out an application.
• Potential cardholders younger than 21 must provide proof of income or have a cosigner on their application. According to the Fed’s rules, the cosigner can be anyone 21 or older (broadened from the Credit CARD Act’s specification that this person must be a parent or guardian).

When It All Happens

• The first changes from the new law took effect on August 20.
• On February 22, 2010, most major elements of the law (including regulations on rate hikes and younger applicants) will take effect.
• In August 2010, the remainder of the provisions will become effective.

If you're struggling with credit card debt, bankruptcy may be one way to eliminate excessive financial burden. Consider talking with a local attorney about your options, including filing bankruptcy.

Additional Resources

Federal Reserve’s Proposed Rules for Implementation of the Credit CARD Act of 2009 (PDF)

Sallie Mae Study: How Undergraduate Students Use Credit Cards (PDF)