The CARD Act Catch

Federal laws now prohibit certain types of marketing for credit cards that targets consumers under the age of 21, but lenders are still working around many protections and finding ways to continue extending offers to young adults.

Though the Credit Card Accountability, Responsibility and Disclosure Act prevents many of credit card issuers’ favorite marketing tricks from being used on college campuses, a lot of issuers are still finding ways to circumvent the new rules, according to a report from the Columbia Free-Times. One of the largest protections put forth by that 2009 law requires that young adults who want their own credit card either have a co-signer over the age of 21 or otherwise provide adequate proof of income. And the latter loophole is the one lenders target, because of how difficult it is to define.

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“When you really take a close look at the CARD Act, the eligibility requirements are not nearly as strict as one would have thought they would be,” University of South Carolina law professor Eboni Nelson told the newspaper. “You don’t have to show your ability to pay the full $1,000 or $2,000 credit limit [for example]. You may just have to pay the $25 or $50 monthly minimum payment, which is a very, very low threshold as far as being able to qualify on your own for a credit card.”

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In addition, students can even claim projected future earnings – like from a summer job or work-study program – as income when they sign up, the report said. Experts say this is particularly concerning because in many cases, that’s guaranteeing debt with money they don’t have.

These days, millions of college students leave school with large amounts of credit card debt in their names as well as tens of thousands of dollars or more in outstanding student loans, and these two concerns make it extremely difficult for many to establish any sort of financial independence soon after they graduate from school.

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For this reason, experts caution that students should do all they can to avoid racking up sizable debts while still in college, because they may not have the financial ability or acumen to properly handle these accounts.

Waiting until they get out of college to start borrowing on credit cards for anything beyond an emergency is usually a better course of action for students.

Image: Joe Shlabotnik, via Flickr