U.S. lawmakers tried to curtail the growing problem of student credit card debt by adding provisions to the Credit CARD Act of 2009 that strictly limited card issuers’ ability to market to college students. But despite the new rules, student credit card marketing appears to be alive and well.
A new study from the University of Houston Law Center found that the provisions in the Credit CARD Act of 2009 appear to have produced little change in card issuers’ marketing practices – despite the law’s stringent requirements.
Since the new rules took effect in February of 2010, credit card issuers are no longer allowed to:
- Offer credit cards to applicants under the age of 21, unless the applicants have a qualified co-signer or they have sufficient independent income to cover a card’s minimum payments.
- Market to students on campus or offer “freebies” to entice students to apply for credit cards.
- Mail pre-screened credit card offers to consumers under the age of 21, unless the consumer gives the credit bureaus permission to share their credit information.
However, according to Jim Hawkins at the University of Houston Law Center, the rules may not have as much teeth as legislators hoped. In a survey of more than 300 undergraduate students at the University of Houston, Professor Hawkins and colleagues found that a significant number of students under the age of 21 came into direct contact with credit card companies – after the rules took effect.
Among the survey’s findings:
- 76 percent of students under the age of 21 reported that they had received a credit card offer in the last year.
- 32 percent of freshmen reported seeing credit card companies market to students on campus, and 72 percent of freshmen reported seeing credit card issuers market to students off campus.
- 47 percent of all students who were surveyed said that they had seen credit card issuers offer tangible gifts to students.
Perhaps most disturbingly, 29 percent of students under the age of 21 said that they had obtained credit cards in the last year by listing student loan proceeds as “income.”
So what gives? Are credit card issuers breaking the new credit card laws? Not likely, say experts. Rather, the card issuers are simply taking advantage of the Federal Reserve Board’s liberal interpretation of the Credit CARD Act.
For example, Hawkins points out that although card issuers are not allowed to hand out applications or freebies to students on campus, they are still allowed to send student credit card offers and free gifts through email. They are allowed to do so because, according to the Federal Reserve, “an email address does not physically exist anywhere, and therefore, cannot be considered an address on or near campus.”
The Federal Reserve Board’s broad interpretation of the Credit CARD Act also allows credit card companies to count student loans as income because the rules require card issuers to simply have “financial information” available that indicates that the student can pay. Not surprisingly, the credit card companies have responded to the Federal Reserve Board’s liberal interpretation by considering student loan proceeds as adequate proof that a student can pay at least the minimum amount due on their cards.
When consumer advocates suggested that credit card issuers be required to verify student credit card applicants’ assets or income and/or only consider income that has been earned through employment, the Federal Reserve Board declined.
“Some [students] are using cosigners and some are using income/assets from a variety of sources to apply for credit cards,” said Hawkins in a statement. “Theoretically, a student could take the proceeds of a student loan and deposit it in a bank account and then count the proceeds as an asset on a credit card application.”
Experts say that this is probably not what Congress had in mind when they tried to halt the national trend toward mounting student credit card debt. If the University of Houston survey is any indication, provisions in the Credit CARD Act are unlikely to protect students as much as hoped.