NEW YORK (MainStreet) — It was dubbed a "game changer" for college students vulnerable to aggressive credit card marketing. President Barack Obama's 2009 Credit Cart Accountability Responsibility and Disclosure Act (the CARD Act) was, in part, supposed to stop credit card companies from luring students to sign up with freebies. But with Class of 2013 graduates averaging $3,000 in credit card debt on top of more than $30,000 in college-related debt, the CARD act clearly isn't having the intended effect.
Not too long ago it wasn't just timetables, triple vodkas and free condoms freshmen were greeted with upon their arrival on campus. University freshmen were also faced with a myriad of credit card offers, offering enticing "freebies," such as T-shirts and pizzas, if they signed up for a credit card. With the prospect of free pizza, beer and a source of revenue in case financial times got really bad, only the wisest, and perhaps better off, of students refrained from falling victim to such offers. Consumer advocates objected to the credit card companies' aggressive marketing tactics aimed at students, arguing it encouraged them to take on debt.
Designed to assuage student debt
The objective of the CARD Act was to prevent such on-campus marketing techniques from occurring. Under the Act, issuers were also prohibited from issuing credit cards to anyone under the age of 21 unless they could provide proof the applicant earned enough to pay the debt off.
In February 2014, the Government Accountability Office (GAO) published a report concluding that credit card marketing at universities and colleges throughout the U.S. had decreased and, in some cases, dried up altogether. The research also found that in 2013 there had been a significant reduction in the number of students receiving a credit card through a direct mail campaign. The GAO study found five out of nine major credit card companies said they no longer "actively market" their cards to students.
Credit card companies still targeting students
On the surface, the CARD Act seems to work in alleviating student debt. Yet, the GAO research conflicts with the findings of a study compiled by the University of Houston. A study by the University of Houston Law Center's Professor Jim Hawkins revealed that despite strict regulations, credit card companies still heavily target college students. In what was the first empirical assessment of the effectiveness of the CARD Act on young consumers, the research showed students still received tangible gifts and pre-screened mail offers from credit card companies. Not only this, but the 2012 study also revealed many young students are still qualifying for credit cards without demonstrating they earn enough to pay of the debt.
Has so much changed in the spate of the two years between the two studies that students are not forced to make the sensible move and refrain from the freebies and financial "freedom" the credit cards promise?
2013 graduates owe an average of $3,000 in credit card debt
Not if the Class of 2013 is anything to go by. Combined with escalating student loans, credit cards and money owed to family, 2013 graduates are facing an average of $35,200 in college-related debt. The Fidelity survey, which studied the debt of 750 college graduates, showed that while the bulk of the debt is from government loans, $3,000 of the average debt was through credit cards.
"We're tending to find people are still surprised at the level of debt they're graduating with, which suggests we still have a long way to go in terms of having conversations about planning for college, saving for college and figuring out the best pace to go [to college]," said Keith Bernhardt, vice president of college planning at Fidelity Investments.
A rude awakening
This "rude awakening" about student debt also proves there is still a long way to go in terms of preventing young students from racking up credit card debt.
So what's the solution? The biggest problem with the CARD Act is that it doesn't actually ban marketing. Instead it merely takes away some of the bells and whistles companies used to execute their credit card marketing strategy. Neither does the Act block companies from mailing younger consumers credit offers.
Dr. Andy Ross, a long-standing university program leader currently at the University of New Mexico, believes more responsibility regarding student debt should be given to the university.
"The marketization of university degrees and with it increasingly high levels of student debt is something we have had to learn to live within the past 20 years," Ross told MainStreet. "At the moment the economic return on having a degree outweighs the cost of the debt although only just for some graduates. However, universities have a duty of care for their students and this includes protecting them from predatory companies charging exorbitant interest rates."
Laws can only go so far to make sure the proper reforms are implemented.
"Politicians can help set the legislative framework but university staff and student unions have to ensure that they provide the information which will enable students, some of whom will be making major financial decisions for the first time, to do so on an informed basis. Also the role of banks and other financial institutions in events such as freshers weeks needs to be carefully monitored," Ross continued.
The Credit Card Accountability Responsibility and Disclosure Act may have made inroads into tackling student debt, but with students spending an average of $171 a month on credit cards and only 72% being able to pay the balance off each month, it looks like Obama needs to make stricter amendments to the CARD Act. Furthermore, universities and colleges need to up their game and take on greater responsibility to help prevent students from succumbing to the rapacious grip credit card companies when they can afford it the least.
--Written by Gabrielle Pickard Whitehead for MainStreet