In early 2010, the regulations designed to help young adults avoid taking on large amounts of costly credit card debt went into effect, but evidence suggests that little has changed in terms of lenders’ pursuit of these lucrative young consumers.
The Credit Card Accountability, Responsibility and Disclosure Act was designed to help limit the exposure of those under the age of 21 to credit cards, specifically by requiring them to either have an adult co-signer on an account they open, or else provide adequate proof of income to show they can afford such an account. But that hasn’t really happened as planned, according to a new study from Professor Jim Hawkins of the University of Houston Law Center. Lenders have been getting around the various requirements put forth by the federal regulation in a number of ways.
For example, 68 percent of college students under the age of 21 have received credit card offers by mail in the past year, as the law only prohibits marketing to youngsters in certain ways on campus, not overall, the report said. Further, 40 percent of respondents noted that they’ve seen lenders giving gifts to student since the Credit CARD Act took full effect, even though this practice is expressly prohibited by the law.
“Most troubling, students are still qualifying for credit cards without demonstrating an ability to repay the debt,” Hawkins said. “My study found that 27 percent of students under 21 who were applying by themselves for credit cards listed loans as part of their income to qualify for the card.”
And though the act brought greater scrutiny to agreements between lenders and either universities themselves or associated groups—like those for alumni—it seems the regulation did little to actually affect those deals, the report said. About 64 percent of the 300 such agreements studied by Hawkins remained unchanged from 2009 to 2010, and while many were also terminated altogether, only two specifically cited the Credit CARD Act as the reason why.
[Credit Cards: Research and compare student credit cards at Credit.com.]
Critics have noted in the past that college students have been able to get around the co-signer or sufficient income requirements for opening a new account by having an older friend help them open the account, or through lenders not being especially stringent in determining what constitutes “adequate” income.
Image: Tulane Public Relations, via Flickr