CARD Act didn't stop flow of credit card offers mailed to young adults
Teens and young adults still on mailing lists, but it's not a violation
The new credit card law was supposed to stop teens from getting credit card offers, right? Not necessarily, credit card company and direct mail marketing experts confirm.
Despite the fact that new credit card reform rules banned those preapproved credit card offers to people under 21, it hasn't stopped the flow of card offers mailed to teens and young adults.
Parents and young adults around the country may wonder why they are still getting mail offers nearly eight weeks after major portions of the Credit CARD Act took effect. That's because those offers -- also known as prescreened offers in the industry -- are just one of the ways credit card companies make offers to customers -- of all ages.
"Issuers are not breaching any compliance if they are sending you those offers," says Anuj Shahani, director of competitive tracking services for Synovate, a direct-mail marketing research firm.
A third of mail generated from consumers
About 70 percent to 80 percent of the more than 200 million pieces of direct mail currently sent each month are generated through the kind of prescreened lists that are banned in the CARD Act. The remaining 20 percent to 30 percent of mail that goes out -- called "invitations to apply" -- is generated because consumers sign up for loyalty or rewards programs, join unions or nonprofit groups or, in a few cases, sign up for freebies and provide a merchant with their mailing addresses.
"They collect these names, and they start sending you offers," Shahani says.
Those member lists can be sold to a credit card issuer, which then churns out those junk mail offers to anyone on the list -- regardless of their ages. That is still legal and not banned by the credit card law.
"There are more restrictions on marketing to young adults, but it doesn't eliminate it totally," says Andrew Davidson, senior vice president of Mintel Comperemedia, a Chicago direct-mail research consulting firm. "Some folks sign up their children on mileage programs."
"My son keeps getting them because he participates in certain frequent flier programs," says Chi Chi Wu, an attorney with the National Consumer Law Center in Boston.
Representatives from the major credit card issuers say they are abiding by the CARD Act's ban on prescreened offers to young people, but when it comes to offers generated from outside organizations, their policies are less clear. Names of teens and even pets can, and do, make their way onto credit card company mailing lists.
Matthew Towson, senior manager of community affairs and media relations for Discover, acknowledged that frequent flier and rewards programs are "ways students can still get credit card offers without prescreening a credit report."
Stop signing your dog up and they won't get credit card offers.
|-- Anuj Shahani
Direct mail marketing expert
"I can't share our strategy other than to say we do not solicit students on campus," Towson wrote in an e-mailed response. "All of our direct mail goes to the parents' homes."
Prescreening credit card customers
What is a prescreened credit card offer? One of the ways credit card issuers market cards to potential new customers is by purchasing lists of eligible borrowers from the major credit reporting bureaus (Equifax, Experian and Transunion). Citi or Chase, for example, may submit a set of criteria to the credit bureau seeking a list of people with credit scores above 700 who have low credit utilization ratios and outstanding mortgage loans (indicating they are homeowners). The credit card issuer may also submit a list of names to the credit bureau and ask to identify the people on the list who meet certain criteria.
"If the criteria are met, they will extend you a credit card offer," says Shahani, the Synovate direct mail researcher. "If you respond, you will be offered a credit card."
The Fair Credit Reporting Act allows banks to use these lists to market to customers only if they make firm offers of credit (called preapproval or prescreening) to the people on the list and as long as those consumers have not asked the credit bureaus to be excluded from prescreened lists. As of Feb. 22, 2010, the CARD Act amended the Fair Credit Reporting Act to exclude anyone whose credit report indicates he or she is under 21 from the prescreened lists.
Mail keeps coming
But, as parents and teens are finding out, that didn't stop the flow of credit card mail to their homes. In the case of airline frequent flier programs, Shahani says, many airlines share their lists of frequent flier participants with credit card companies that offer co-branded airline credit cards. "Most of those go out without being prescreened. It's blanket mailings and mass marketing," he says.
If you sign up for retail store loyalty programs to gain access to discounts or early-bird specials, your mailing address could end up on a list that can be used to send out credit card offers.
|HOW TO GET OFF, STAY OFF
CREDIT CARD MAILING LISTS
Don't want to get any credit card offers? With some effort, you can cut them substantially.
- The Federal Trade Commission offers tips on getting off of prescreened marketing lists.
- If you want off of prescreened lists, you may do so by phone at (888) 5-OPTOUT ((888) 567-8688) or at the website set up by the credit reporting bureaus, OptOutPrescreen.com. You can choose whether to opt out for five years, or permanently. When you call or visit the website, you'll be asked to provide personal information, including your name, date of birth and home telephone and Social Security numbers.
It may take a little more effort to get off of lists that are generated by organizations that you are a member of or services that you join.
"Once you get in some of these databases, you basically get stuck," says Anuj Shahani, director of competitive tracking services for the Synovate direct-mail marketing firm. He recommends contacting the company or group that you joined (your professional association, union or other organization) and requesting that you be removed from any mailing lists that are shared with marketers. "You can contact your alumni association and tell them to drop your name off their list," he says.
When joining groups, pay close attention to their privacy policies. Some organizations or services include boxes on their sign-up forms. Checking the box indicates you agree to have your mailing address shared for marketing purposes. Do not agree to this.
"Usually some of marketing materials give you the opportunity to opt of future communications or opt out from having your name passed on to other marketers," says Andrew Davidson, senior vice president of Mintel Comperemedia, a Chicago direct-mail research consulting firm.
If the sign-up form doesn't specifically address sharing of contact information, ask the organization. Shahani says those mailing lists are updated and purged periodically so "eventually your name will fall off of the list."
"You go sign up for a Macy's card or any type of store relationship you would have," Shahani adds. "You could be a Disney member and Chase could be sending you a mailing."
He notes the stories that surface periodically about a family pet getting a credit card offer. If the pet is mailed an offer, it means "you signed the dog up some place. Stop signing your dog up, and they won't get credit card offers."
The same thing is true for minor children.
"The major issuers tend to stay away from sweepstakes lists. They already have massive databases of their own with millions and millions of names," says Shahani, who adds overall direct mail volume is actually down because of the credit crisis from a high of 600 million pieces a month in 2007 to 200 million a month so far in 2010. He says the proportion of prescreened mail has not changed significantly since Feb. 22, despite the fact that people under 21 are now being excluded -- further evidence that young people are just a small subset of the overall credit card market.
Many college and university alumni associations may also share their alumni lists with banks as part of lucrative, multimillion-dollar affinity card program deals. As of Feb. 22, 2010, the CARD Act requires those once-secret deals to be made public and reported to federal regulators each year. Like the ban on preapproved credit card offers to the under-21 crowd, that provision of the credit card law was designed to help prevent young adults from getting in over their heads with credit card debt. The CARD Act does not ban colleges from making deals to sell their student and alumni lists to credit card issuers -- it just requires them to disclose the contents of the contracts. Several of the major banks say their college marketing programs target alumni who are over 21 rather than students.
Bank of America, for instance, had an extensive affinity marketing program with numerous organizations, including colleges.
"They could acquire your name from your university and you could get a credit card offer without being prescreened. You could be 18 and still get an offer," Shahani says.
Membership in fraternities, sororities, unions, AAA and nonprofit organizations (such as the National Rifle Association, the Children's Cancer Research Fund or the Children's Wish Foundation) may potentially place your mailing address on a credit card marketing list.
In addition, Shahani says there can be other avenues. "If you're at Six Flags and they are giving away a free backpack. They could be collecting names of children and sending out packets of information."
There are more restrictions on marketing to young adults, but it doesn't eliminate it totally.
|-- Andrew Davidson
But the CARD Act has a speed bump of sorts for young adults. Should they get credit card offers in the mail, once they truthfully fill out an application and indicate a date of birth that shows they are under 21, the credit card issuer must ask for a co-signer (or guarantor) on the account. That person would be responsible for the debt should the young person not be able to pay the credit card bill. In addition, the law says anyone under 21 who wants a credit card account in their own name may also show proof they have an independent means to pay their debts, such as a job or other source of income. The Federal Reserve has ruled that card companies don't have to ask for paycheck stubs or income tax forms of underage applicants. Banks can use services provided by the major credit reporting bureaus that estimate incomes based on statistical models.
Mistakes can happen
Shahani notes that some of the mail still going to young adults may be from prescreened lists as well. He says the CARD Act bans credit card companies from "knowingly" including young people on the lists. A teen's name can accidentally appear on a list. Or, if the credit report has a phony birth date (a la fake driver's licenses), a young adult might also still get preapproved credit card offers.
"We do not mail to under 21 intentionally," Desiree Fish, American Express spokeswoman, wrote in an e-mailed response. "In some cases, age may be reported incorrectly or not at all so that may explain why someone got one."
Adds Shahani: "I'm sure there will be a couple of database errors that will eventually surface."
See related: Credit card reform and you, A guide to the Credit CARD Act of 2009
Updated: July 29, 2010