This is a news blog. But it’s doubtful many readers will be shocked by the revelation that credit card companies are spectacularly good at finding loopholes in regulations, including those in the Credit CARD Act of 2009 that are supposed to protect students and other young people from aggressive marketing techniques.

Credit cards too available to the young?

What is new is that anecdotal evidence of failures in such regulations is now for the first time backed up by an empirical study. Trailing publication of his full report in the fall, Professor Jim Hawkins of the University of Houston Law Center comments in an Apr. 24 press release: “Based on this survey and study, I found that many of the CARD Act’s student and young consumer provisions have not affected credit markets in the ways the Act’s proponents had hoped.”

Over the last two years, Hawkins has surveyed more than 500 students, and is particularly concerned that student credit cards are still being issued regardless of the young person’s ability to make payments. He continues:

Most troubling, students are still qualifying for credit cards without demonstrating an ability to repay the debt. 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.

Student credit cards for all who can mist a mirror?

How can this be? The CARD Act specifically required that, absent a co-signer, anyone under 21 applying for plastic had to have an “independent ability to make required minimum payments.” Back in August 2010, in “Student credit cards: still hard lessons to be learned“, this blog explained why the law is failing:

When the act was signed, consumer advocates begged the regulator, the Federal Reserve (who else?), to define what constituted an “independent ability to make required minimum payments.” It refused. And they asked it to force companies to verify whether or not students making credit card applications really had the resources they needed to support the card. It turned down that one too.

So at least one big bank says that it will issue credit cards to students under 21 years old if they have an annual income of…$2,000 or more. And it will count parental contributions, grants, and scholarships when it calculates that income. Oh, and it won’t ask for any proof.

Now it seems student loans are being counted too.

Other provisions circumvented

The CARD Act was also supposed to prevent credit card companies from:

1. Handing out promotional gifts to students on campus — yet 40 percent of Hawkins’ sample said they’d witnessed that occurring after the Act was in force.
2. Mailing credit card offers to students — but 68 percent reported they’d received one in the previous year.

For the right kid, a student credit card offers valuable tools as well as important experience in managing his or her own money. For the wrong one, it can blight a young person’s life for many years. Maybe it’s time for the still-new Consumer Financial Protection Bureau to take another look at how they’re marketed and issued.

Published 04/27/12