Whack A Mole!

Bankers’ whack-A-Mole. As Congress keeps whacking them down, bankers pop right back up some other place. Such is the latest example in the case of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009.

Jim Hawkins, an assistant professor at the University of Houston Law Center, just produced a study based on surveys of 500 students at the University of Houston and Baylor University in Waco, Texas, that found that banks have developed a variety of tactics to evade tough new federal restrictions on the marketing of credit cards to college students .

Their techniques include:

  • Work-arounds to mail credit card offers to students.
  • New programs to offer “tangible” gifts to prospective collegiate credit card customers.
  • And, most provocatively, policies that allow college students, including those younger than 21, to include loans as a component of the income they cite to qualify for credit cards.

In the end, Hawkins said, not much has changed when it comes to the aggressive on-campus or near-campus marketing of credit cards. Countless college students, many of them financially or chronologically unprepared for the burden of credit card debt, are still being bombarded by offers.

“The CARD Act doesn’t seem to be working as its proponents had hoped,” Hawkins said. “Students under 21 years old are still reporting that they’re getting credit card offers in the mail and that they see credit card companies on campus and giving out tangible items at pretty high frequency.”

Another study  found that 70 percent of American college students have credit cards, but 84% of them don’t know their cards’ interest rates, late payment charges or over-limit fees. 90 percent of college students are carrying monthly card-related debt. The average credit card debt for a college senior was $4,100 in 2009. And, the average interest rate on the cards was 32.3%.

Of course the banking lobbyists and their representatives have come to the rescue, “There was nothing in the CARD Act that was intended to prevent students from getting credit cards,” said Nessa Feddis, vice president, senior counsel and a retail banking expert at the American Bankers Association, which represents credit card issuers.  “Credit cards are useful to everyone, including students, especially in times of emergency,” Feddis said. “They also help young people build up a credit history.” Bwahaha.

The study found that:

  • 58% of responding students under 21 years old said they received credit card offers, including so-called “prescreened” offers, in the mail during the past year.

The CARD Act tried to make it more difficult for issuers to obtain student addresses and to prevent the big-3 from issuing credit reports unless specifically requested by borrowing students. However, the CARD Act does not prohibit colleges and universities from sharing student mailing addresses with credit card companies. So, what’s the point? Why does Congress bother with legislation like this?

  • 40% of responding students reported seeing representatives of credit card issuers hand out promotional gifts to students.

The CARD Act prohibits card issuers from marketing activities on campus or within 1,000 feet of a college campus or at school-related sporting events, concerts, etc. Those regulations also forbid the distribution of “tangible” items such as gift cards and T-shirts. But, the credit card companies are not taking these rules very seriously, because enforcement is difficult.

  • 27% of responding students under the age of 21 said they were allowed to list their student loans as part of the “income” to qualify for their credit cards.

The CARD Act went to great lengths to require students to prove they had sufficient income to repay their credit card debts or had a co-signer for those cards. According to the Fed, those sources of income could include salary, wages, tips, bonuses and commissions from full- or part-time jobs and self-employment as well as income from interest, dividends, child support, alimony payments, retirement benefits and public assistance. But, there was no mention of student loans as income.

On the other hand, there is no language that explicitly prohibits the inclusion of loans, an apparent loophole that card issuers are exploiting. Is Congress that stupid, … or?

Feddis said it’s not a loophole at all. If loans are a MINOR component of a student’s income or ability to cover credit card debts, there simply is no problem, she said. She also emphasized that credit cards and college students are not necessarily a formula for financial disaster. HAHAHAHA.

“There never was an intent in the CARD Act to discourage or prohibit students from getting credit cards,” she said. Really?


About Steve King

iPeopleFINANCE™ Chief Operating Officer. Former CEO of Endymion Systems, Inc. a $36m Information Systems Services company. Co-founder of the Cambridge Systems Group, the creator of ACF2, the leading IBM Mainframe Data Center Security product; acquired by Computer Associates. IBM, seeCommerce, marchFIRST, Connectandsell alumni. UC Berkeley alumni. View all posts by Steve King

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