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Study: Students Remain Targeted by Credit Card Companies

Published: Wednesday, May 30, 2012

Updated: Tuesday, June 5, 2012 15:06

Credit Cards

Ron T Ennis

College kids have been flunking personal finance for years, making them a constant target for credit card companies.

In an effort to protect young consumers from over-indebtedness Congress implemented stricter regulations on credit card companies with the Credit Card Accountability and Responsibility and Disclosure (CARD) Act of 2009, but a recent study by University of Houston Law Professor Jim Hawkins suggests the new regulations may not be living up to their intentions.

“The act is not accomplishing the goals that people had set, so to the extent that we think those things are valuable we need to rework the law,” said Hawkins, an expert in consumer credit.

Advocates of the Credit Card Accountability Responsibility and Disclosure Act of 2009 hoped the new law would curtail rising student debt by eliminating credit card companies’ aggressive marketing campaigns aimed at college students.

“It’s important that students don’t leave college with financial distress because it affects their lives, their family’s lives and the rest of society,” Hawkins said.

Today, three out four college students have a credit card and carry more than $3,000 of credit card debt, according to the US Federal Reserve.

Hawkins surveyed 500 students and examined 300 credit card agreements over the past two years.

He found that while credit card companies aren’t directly violating new regulations set forth in the CARD Act, its roundabout approach has little effect on aggressive advertising tactics.

“I think the CARD Act ran into trouble because its provisions address problems so indirectly,” Hawkins said.

Prior to the CARD Act, card issuers set up shop on campuses and dished out freebies to students who filled out credit card applications — a practice that is now illegal. Card issuers handing out free pizza and gift cards may be absent from campuses, but they continue to use the same tools of persuasion — only this time a few blocks away from campus.

Additionally, the law banned companies from offering credit cards to anyone under 21 who didn’t have a co-signer or proof of sufficient income. Twenty-six percent of students qualify by listing loans as part of their income, according to Hawkins’ findings. While the practice is legal, it is hazardous to consumers.

“In one sense things have changed, but in another sense they haven't changed much at all,” he said.

Evidence in the study supports the idea that the more stringent regulations may gradually be working.

The CARD Act regulations aimed to lower credit card offers sent in the mail, and from 2010 to 2011 surveyed students noticed a decrease in the number of credit card offers littering their mailboxes.

While the effectiveness of the Act may be in question, financial planning experts believe the only sure-fire way to protect young consumers against years plagued with credit card debt is education.

“As a consumer you need to be aware of what you are doing,” said local financial planner Chad Crowder, who has more than 13 years in the industry and now runs CKC financial services. “We need to do a better job as a society in educating younger people about money.”

A credit card has only two purposes, he said: to build credit for when you want to buy a home and for increased consumer protection when purchasing online.

Aside from that cash is king.

“I try to coach people to pay cash for everything, the reality is anytime you have a payment hanging over your head it’s a bad thing,” he said.

While reaching for the plastic may be enticing, Crowder urges consumers to keep some tips in mind when dealing with credit cards:

Limit yourself to one credit card.

Shop around and choose a card with the lowest interest rates.

Read the small print and make sure that extra fees are nominal or nonexistent. An extra $3 a month may seem trivial but it will add up.

If you use your credit card, make sure you can pay it off at the end of the month — having too much credit and carrying a balance will hurt your credit score.

Next time you’re tempted to make an impulse buy and whip out the plastic or you to open one more credit card, consider the larger ramifications.

“The number one key to success is not having any debt,” Crowder said. “So if you want to be successful stay out of debt.”


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