The CARD Act requires that lenders now take steps to ensure that their applicants have some sort of ability to pay their debt obligations. The fact that it took a Federal law to accomplish this is a head-scratcher for sure. The question is, how are lenders doing this and how are they navigating around and through the requirement?

First off, your credit reports don’t contain your salary, so that’s a dead end. Second, your credit risk scores are not designed to predict capacity to pay, but are rather designed to predict the likelihood of you paying so that’s a dead end too. And lastly, trusting what you put on your credit application as “income” has proven to be unreliable, so that’s not really an option either.

This is certainly a capacity conundrum. And, since the world of credit is not without humor, I gladly bring you CARD Act loophole number 73: Student loans and the “no cards for those under 21” rule. A student loan is a real loan with strange terms. It’s issued by a bank and is sometimes federally guaranteed. The monies are generally disbursed quarterly or each semester to coincide with the school’s preferred method of slicing up the school year. The loans are meant to go toward funding tuition and college related costs.

What allows student loans to become a loophole to the CARD Act capacity to pay provision is the fact that most student loans are paid to the student rather than to the school directly. Then the student uses it to pay for tuition and books and other school expenses, or at least that’s the plan. I know people who used their student loans for expenses that would never be confused with scholastic expenses.

And if what we’re hearing is true, credit card issuers are considering student loans to be income rather than a liability. It seems to make sense to do so considering there is no immediate obligation to pay back a student loan, and by the time the loan enters the payback period the student will likely be employed. But still, if 100% of the loan is meant to be paid to the school, how can it be income?

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

The CARD Act requires that lenders now take steps to ensure that their applicants have some sort of ability to pay their debt obligations. The fact that it took a Federal law to accomplish this is a head-scratcher for sure. The question is, how are lenders doing this and how are they navigating around and through the requirement?

First off, your credit reports don’t contain your salary, so that’s a dead end. Second, your credit risk scores are not designed to predict capacity to pay, but are rather designed to predict the likelihood of you paying so that’s a dead end too. And lastly, trusting what you put on your credit application as “income” has proven to be unreliable, so that’s not really an option either.

This is certainly a capacity conundrum. And, since the world of credit is not without humor, I gladly bring you CARD Act loophole number 73: Student loans and the “no cards for those under 21” rule. A student loan is a real loan with strange terms. It’s issued by a bank and is sometimes federally guaranteed. The monies are generally disbursed quarterly or each semester to coincide with the school’s preferred method of slicing up the school year. The loans are meant to go toward funding tuition and college related costs.

What allows student loans to become a loophole to the CARD Act capacity to pay provision is the fact that most student loans are paid to the student rather than to the school directly. Then the student uses it to pay for tuition and books and other school expenses, or at least that’s the plan. I know people who used their student loans for expenses that would never be confused with scholastic expenses.

And if what we’re hearing is true, credit card issuers are considering student loans to be income rather than a liability. It seems to make sense to do so considering there is no immediate obligation to pay back a student loan, and by the time the loan enters the payback period the student will likely be employed. But still, if 100% of the loan is meant to be paid to the school, how can it be income?

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

The third and final phase of the Credit Card Act of 2009 went into effect yesterday, on Aug. 22. And while most of the provisions went into effect in February of this year, the remaining provisions include some pretty significant changes that you should know about.

To help explain what these final changes mean for you, Adam Levin, chairman and founder of Credit.com, was invited to appear yesterday on ABC's Good Morning America. Watch the clip to hear more about the final changes pertaining to credit card fees, the new 6-month interest rate review mandate and new gift card rules that went into effect yesterday:

Fee Changes:

• Credit card issuers cannot charge you an inactivity fee for not using your card, including fees for not charging a certain amount each month.


• Credit card issuers cannot charge you a late fee greater than your minimum payment.

Interest Rate Reviews:

• If your rate was increased because of late payments, you must be given the opportunity to earn back your previous rate. By paying your account on time for six consecutive months, your credit card issuer must lower your interest rate back to the rate it was before the increase.

• If your rate was increased after January 1, 2009 for any reason, beginning in February 2011, your card issuer must review your account every six months to determine whether the reasons behind the rate increase still apply. If not, they must reduce the rate, though there is no specific amount by which it must be lowered.

Gift Card Changes:

• Gift cards, prepaid cards and gift certificates cannot expire within five years of activation, unless the terms and expiration are clearly disclosed before it’s purchased. If you load additional funds onto a card, the five year expiration period is extended by five years.

Thanks to the CARD Act, consumers are no longer solely at the mercy of their credit card issuer's whims. If you'd like more information on the CARD Act and want to know what changes you'll see with each provision, be sure to check out Credit.com's Consumer Guide: How the Credit CARD Act of 2009 Affects You.