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Despite new CARD law, credit card companies still targeting young adults

Michelle Singletary
Washington Post Staff Writer
Wednesday, January 12, 2011; 8:03 PM

I wasn't naive enough to think that major credit card legislation passed in 2009 would stop lenders from going after young customers.

No, I just assumed that card issuers would find a way to target and sign up college-age adults, leading them into a lifetime reliance on plastic money.

Using the three-word command of Capt. Jean-Luc Picard on "Star Trek," I imagine that - following the passage of the Credit Card Accountability, Responsibility and Disclosure, or CARD, Act - credit card executives said to their marketing personnel, "Make it so."

And so they did.

Jim Hawkins, a professor at the University of Houston Law Center, found that 76 percent of the 300 undergraduates participating in a survey he conducted had received a preapproved credit card offer last year. This is an important finding, because lawmakers had intended to curb such offers to those younger than 21.

CARD amended the Fair Credit Reporting Act to limit pre-screened credit card offers to consumers younger than 21 unless the consumer gives credit bureaus the permission to share such information.

Additionally, card companies marketing on or near a campus can't offer students any tangible items to induce them to apply for a credit card. But in clarifying the law, the Federal Reserve said offering tangible items such as T-shirts or pizza to college students is banned only if the items are offered to induce the student to apply for or start an open-ended consumer credit plan. Companies can also offer non-tangible items such as discounts, reward points or promotional credit terms.

It's no wonder that first-year students, Hawkins found, reported seeing credit card marketing at almost the same rate as students who had been in school for more than a year. Thirty-two percent of freshmen said they had noticed credit card companies marketing on campus.

Hawkins said CARD should have made it much less likely for freshmen to have seen advertising because the law has been in effect the entire time the freshmen have been in college. However, with Grand Canyon-wide loopholes in CARD, credit card companies still have easy access to young consumers.

"It concerns me that the marketing hasn't abated," Hawkins told me. "I think one answer would be to ban marketing to college students completely. If we really think it's important not to market to students, why not make it easier by imposing an absolute prohibition on marketing rather than imposing certain rules?"

Why not, indeed.

I'm sure some will attack Hawkins's survey, which is narrow in scope. It's not a national representation. The students interviewed were from three undergraduate history classes at the University of Houston (two introductory classes and one upper-level class). I hope Hawkins or other researchers expand the study to more campuses.

One finding in Hawkins's survey particularly disturbed me. Twenty-nine percent of students younger than 21 who obtained a credit card since school began this past fall used student loan proceeds as part of the income they reported when applying for the card.

Issuers are banned from providing credit cards to people younger than 21 unless another adult co-signs for it or the student can show an independent source of income to make the required minimum payments. However, under the provision for ability to pay, CARD doesn't require verification of information provided by a consumer regarding income or assets. In other words, underage applicants don't necessarily have to show the source of the funds they plan on using to pay their credit card bills. So it's conceivable that a student would get the proceeds of an education loan, deposit it in the bank and then use that information as evidence of ability to make payments, Hawkins said.

Surely legislators didn't mean for students to use student loans to pay their credit card bills. We should be requiring lenders to verify the income source or assets that students claim they have.

But alas, the relentless effort to put credit cards in the hands of young adults reminds me of one of my favorite episodes of "Star Trek: The Next Generation." Picard, who is transformed into an unfeeling Borg drone (Trekkies will definitely feel me on this), says to the crew of the Enterprise: "Resistance is futile. Your life, as it has been, is over. From this time forward, you will service us."

That pretty much sums up what the new law is up against in attempting to keep credit cards away from young adults. I still see a future of young adults servicing credit card debt. Resistance may indeed be futile.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com. Questions are welcomed, but because of the volume of mail, personal responses may not be possible.

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