Student credit cards and young credit

Credit card marketers drop out of college


Fall 2009 is card issuers’ last unfettered chance to sign up students. Rather than give an all-out marketing blitz in its last dance, issuers are sitting this one out.

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For decades, they were everywhere on campuses across the United States, hawking T-shirts and free food to students in exchange for filled-out credit card applications. But this semester, credit cards marketers are dropping out of college.

Young adults and credit cards: Law brings big change
Young adults and credit cards:
Law brings big changes
Beginning in February 2010, young adults’ access to credit cards will be curtailed, as will credit card marketers’ access to students, as part of a far-reaching reform law. looks at how the changes will affect the industry, parents and young adults.

  • MAIN: Credit cards dropping out of college.
  • Details of law’s changes for young adults.
  • College students love, hate new law.
  • MAP: How students across the U.S. react.
  • Fed to issuers: Stay 1,000 feet from campus.
  • When NOT to piggyback on parents’ credit.
  • Alternative ways for students to build credit.
  • VIDEOS: Students give mixed reviews.

“It has gone down,” says Damian Wolak, student government president at the University of Illinois at Chicago. His predecessor with the student group was so incensed about the campus marketing that he testified at a 2008 Congressional hearing. “I’m definitely happier that they are cracking down” on card issuers marketing credit cards on campus.

The fall of 2009 represents card issuers’ last unregulated chance to market their products to students. In May, a federal reform law passed that will, beginning next year, sharply restrict how and when young adults can get credit cards — and exactly how card issuers can pitch their plastic to them.

Card issuers could have gone all out in this, their last chance to market credit cards on campus. Instead, finds, they’ve already scaled back.

Cards: not so big on campus
The reasons for the campus pullback are many, say banking industry representatives, consumer advocates and college officials. They include:

  • Colleges, universities and student governments are yanking the welcome mat out from under card vendors. Many are charging fees for the privilege of setting up tables, restricting sign-up efforts to only certain areas of campus or days of the week or banning them altogether.
  • Uncertainty about the details and impact of college credit card marketing provisions in a new federal credit card law that takes effect in February 2010 has some credit card issuers cutting back on campus marketing this year. Others say they abandoned campus marketing efforts three years ago — preferring to sign college students up for credit cards at their home bank branches or through online applications.
  • Banks have taken a hit financially in the recession and can’t afford to market credit cards as they have in the past. Many are shifting their efforts to customers with only the most stellar credit records and students — with their limited credit history — are considered riskier customers.
  • Americans are shedding debt at a record pace. Public sentiment about credit cards has shifted dramatically in the past few months — amid negative publicity about credit card “traps” and problems.
  • As of September 2009, 14 states have enacted laws restricting credit card marketing on campus. conducted an informal survey of 11 public and private colleges and universities. Student journalists interviewed other students and administrators about what’s happening on their campuses this fall, whether their schools restrict credit card marketing and how students feel about the Credit CARD Act of 2009 and the impending federal restrictions on marketing and issuing credit cards to people under 21.

Little campus activity seen
Many schools are reporting little or no marketing activity this fall on campus. Credit card marketing on college campuses — once as common as tailgate parties and Greek Week — has fizzled.

Until this fall, “tabling” — a marketing practice so named because card vendors typically set up freebie-filled tables in high-traffic areas on or near campus — was a rite of college passage. Though sometimes criticized as exploiting those unfamiliar with credit, it worked. A 2008 campus credit card survey of 1,500 students at 40 colleges and universities conducted by the PIRG consumer group found three of four students had stopped at tables to consider offers or apply for credit cards.

Concern about the potential predatory nature of the college pitches led lawmakers to include a set of new college card marketing restrictions in the federal law.

“Credit card companies see college students as a potential market,” says Dr. Mary Beth Pinto, professor of marketing at the Sam and Irene Black School of Business at Penn State Erie. “If they get them early, research says they will stay with a card for 16 years. Also, companies realize it’s a good opportunity since students will be graduating and making decent money.”

She adds: “I personally think the new law is a very good first step. There needs to be more control. Parents need to educate proper use of credit to their students and teach them what is acceptable usage.”

No more student credit cards?
Some card industry analysts and banking observers are predicting the complete demise of student credit cards and on-campus marketing come Feb. 22, 2010, when major provisions of the new law take effect.

Among other things, that law bans offers of freebies as inducements to get students to sign up for credit cards on or near college campuses. In addition, the law restricts credit cards for anyone under the age of 21.

There are two important exceptions. An adult younger than 21 can get a credit card if:

  • A parent or other adult co-signs on the accounts and takes responsibility for paying the bills.
  • If the young adult can show proof of income or other means of repaying the card loans.

Changes wrought by the new law are forcing credit card banks — already reeling from the recession — to dramatically revamp the ways they do business. Student credit cards are a relatively small portion of the overall credit card market, according to Peter Garuccio, spokesman for the American Bankers Association trade group. He suggests that with everything else happening in the market, many issuers may stop offering cards to students altogether.

“The reform measures when taken in total represent a fundamental overhaul of the industry and require an entirely new business model going forward — one that may make it too difficult or cost prohibitive to remain in this market, especially if a card issuer’s presence in the market has been a relatively minor part of their portfolio,” Garuccio says.

Growing disdain for credit
Even if credit card companies hadn’t curtailed their marketing, they may have found fewer students willing to apply for plastic. The reason: Credit cards have become a hard sell in many venues. Following a spring and summer of some of the worst publicity in industry history, more students are aware — from their own parents, friends and media reports — of the potential pitfalls of owning credit cards. Among them: gotcha fees, credit limit reductions, closed accounts and interest rate hikes on good and bad customers.

The fact that Americans in general are shedding debt at a record pace is evidenced by the latest consumer debt numbers from the Federal Reserve’s G.19 report — a monthly indicator of outstanding revolving debt. In the first seven months of 2009, revolving debt (nearly all of it credit card debt) fell by an unprecedented $50 billion, according to the Fed.

States intervening
It may be that by the time the new credit card law kicks in, state governments, the colleges themselves, a difficult economy and credit card bank instability may have played a greater role in driving marketers off campus than the law itself.

At least 14 states — with Connecticut and Illinois as the most recent — have passed laws limiting on-campus credit card pitches or release of student or alumni names, phone numbers and addresses to credit card marketers. Many more colleges, universities and student governments have also booted booths, tables and tents from campus by adopting policies to shield students from card vendors.

“Those days are gone as far as UM is concerned,” says Dan Westbrook, director of the University of Miami’s University Center, where tables once lined the popular student hangout area called the breezeway outside the campus bookstore in Coral Gables, Fla. Over a period of years, the school cracked down on hawking. “They aren’t trying to market students in the breezeway like they used to.”

At the University of Missouri at Columbia, credit card companies that wish to solicit students on campus must also distribute educational handouts provided by the university and be transparent about “fine print” details, such as annual percentage rates (APRs), says Joe Hayes, an administrator.

“At a certain point in time here, students were just getting taken advantage of,” Hayes says. “Not knowing what [credit] limits were, what the APR is.”

The school also bans promotional gifts as incentives for filling out credit card applications. As a result of that and other restrictions, credit cards haven’t been marketed to students on campus since before 2005, Hayes says.

At Emory University in Atlanta, banks that previously returned to campus following the fall orientation have been no-shows this year, says Andrea Lentz, Emory’s director of meeting services. She says during that fall orientation, banks typically bring water bottles, Frisbees and other tchotchkes and allow students to become familiar with lenders, compare services and open up accounts. Banks are permitted to reserve tables in the central student union building, the Dobbs University Center.

Lentz says that after orientation, Emory usually receives occasional requests from banks to return to campus, particularly if they have special offers, such as last fall when Wachovia offered $25 to students to open new bank accounts. Among those visiting the campus: the Emory Alliance Credit Union, Wachovia (since taken over by Wells Fargo), Bank of America, BB&T and SunTrust. She notes that most of the banks coming to campus encourage students to open up checking accounts, not apply for credit cards.

This year, however, Emory has not been approached by any of the banks to return, Lentz says.

Many card issuers no longer marketing on campuses
The major credit card issuers say they either no longer market on campus (several stopped as many as three years ago) or have cut back significantly on on-campus sign-up efforts, citing the credit crunch and uncertainty over what will be required of them under the new regulations.

Several credit card issuers indicate they have begun to focus less on offering credit cards to students and more on other banking services, such as ATM and debit cards linked to checking and savings accounts.

Of the top six credit card issuers, only one — Bank of America — indicated it is marketing on college campuses this year. But even that effort has been scaled back compared to a year ago, according to BofA spokeswoman Betty Riess. Chase, Citi, Wells Fargo, Discover, Capital One and HSBC do not engage in campus credit card marketing, according to their representatives.

BofA’s Riess would not say how much the bank has retrenched on campuses, but added they no longer focus solely on credit card marketing to college students. At schools where BofA is marketing, “Our checking products are the primary products we would be offering. The only instance in which we would be on campus marketing only credit cards would be at an athletic event, where the target market would be alumni and other nonstudents.”

Several colleges indicated they have exclusive agreements with credit card issuers to market so-called affinity cards to alumni. Under the new credit card law, those agreements must be made public and reported to the Federal Reserve.

Less centered on student credit
Chase, the No. 1 U.S. credit card issuer, has pulled out of campus marketing. “We ended student-focused campus marketing in 2007 and alumni-focused athletic event marketing in 2008,” Chase Card Services spokeswoman Gail Hurdis, wrote in an e-mail.

According to Lisa B. Westermann, assistant vice president of public relations for Wells Fargo, “We offer college students a combination financial services product — the College Combo package — that may include a checking account, savings account, ATM card or check card, credit card with overdraft protection (if the student qualifies for the card) and free online banking,” Westermann wrote in an e-mailed response. “By focusing on the total banking relationship with the college customer and not just the credit card, Wells Fargo has found that students are more responsible with their finances. They typically are more successful managing their credit card accounts than those customers who do not have a total relationship with us.”

One study, conducted by Student Monitor, a New Jersey-based student market research firm, shows about 45 percent of students with credit cards got them not by signing up on campus, but through their home bank branch when they open regular checking or savings accounts. Still other students are getting credit cards through online applications and as part of in-store discounts when they shop at malls.

Students sound off about new law
On Sept. 29, the Federal Reserve issued specific guidelines on the new college card marketing rules. It defined what constitutes marketing “near” campus as within 1,000 feet, and spelled out guidelines for what documentation students will need to provide to card issuers to prove they can pay credit card bills themselves. But even before the clarifications, the law generated heated debate about its impact on students.

Critics of the law have said it will hinder some students’ efforts to establish credit in their own names until they are 21 — a time when many are graduating from college and need good credit records for their first jobs, cars and apartments. Some under-21 college students say they’ll apply for new credit cards before the law takes effect.

Nothing in the law prevents young adults from becoming authorized users on their parents’ credit card accounts — commonly known as “ piggybacking .” However, if parents have bad or deteriorating credit (not uncommon in today’s credit crunch) some students may find it hurts more than helps to piggyback with parents. (See Piggybacking may backfire on some.) Still other 19- and 20-year-olds who are on their own say having to ask a parent or other adult to co-sign or add them as authorized users on accounts is taking major steps backward in their quest for financial independence.

Freelance writers Griselda Nevarez, Josh Barone, Lexi Belculfine, Tiffany Han, Nicole Blake, Keaton Gray, Skyy Sandifer and the University of Miami/Miami News Service contributed to this report.

Big changes on campus: Students meet credit card reform
  • VIDEOS: Students react to changing laws limiting credit use, marketing
  • THE FINE PRINT: How credit card law changes students’ credit access
  • QUOTED: College students sound off about restrictions limiting their credit
  • LESSON: When is it a BAD idea to piggyback on Mom or Dad’s credit card?

See related:Credit card reform and you, A comprehensive guide to the Credit CARD Act of 2009

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