The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 was designed to end a number of credit card industry abuses, among them the heavy marketing of credit cards to college students.
While some of the reforms in the law may have been effective, a study by University of Houston Law Center Professor Jim Hawkins finds college students still are getting nearly the same number of credit offers, despite their inability to repay.
An expert in consumer credit, Hawkins said he surveyed more than 500 students and examined 300 agreements between issuers and colleges and alumni associations over the past two years.
Little effect
"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," Hawkins said.
The CARD Act took effect in February 2010 and was designed to prevent student over-indebtedness, to end aggressive marketing to college students, and to reveal and change agreements between credit card issuers and colleges.
According to the study, 68 percent of students under 21 reported receiving credit card offers in the mail during the preceding year, a practice the Act's sponsors hoped to curtail. Also, 40 percent of students reported seeing credit card companies giving gifts to students while the Act was in effect.
Under the Act, banks and card issuers were also banned from offering credit cards to anyone under the age of 21, unless they have a qualified co-signer or proof of sufficient income to repay the debt. Hawkins says he found little evidence of that change.
Troubling
"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."
Hawkins also said he found that the requirement that credit card companies disclose previously secret agreements between issuers and colleges has caused virtually no change in the number of these agreements or their terms. Approximately 64 percent of the 300 agreements studied remained exactly the same in 2010 as they were in 2009.
"Some agreements were terminated, but almost all of them appear to have been terminated in the ordinary course of business," Hawkins said. "In only two cases in all of the 300 agreements that I reviewed did I observe any mention of regulation as influencing the decision to end the arrangement."
Loopholes
Part of the problem, says Hawkins, may lie in loopholes in the law. The Act does not explicitly ban sending people under 21 credit card offers in the mail; it just makes it more difficult to get their addresses. The Act also does not ban credit card marketing on colleges; it just prevents one narrow type of advertising, Hawkins notes.
"If Congress was concerned about people under 21 receiving credit card offers in the mail, it could directly prevent that conduct by making it illegal to mail anyone under 21 a credit card offer," Hawkins said. "Similarly, if Congress was concerned about abusive terms in the agreements between credit card companies and colleges, it could directly forbid those abusive terms instead of just requiring companies disclose the agreements."