Congress is conducting hearings. State attorney generals are issuing subpoenas. Legislatures are imposing regulations and restrictions.
The target: credit cards. More precisely, the manner in which these 3\xbc-by-2-inch slices of buy-now, pay-later plastic are marketed to financially naive college students.
Issuers of student credit cards — once greeted by cash-starved college administrators with open arms and outstretched hands — now are as welcome on some campuses as an outbreak of mononucleosis.
Welcome mat frays
“I would say that the welcome mat is no longer out to credit card companies as schools reevaluate whether it is worth it to jeopardize the financial futures of their students,” says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a consumer advocacy organization.
Mierzwinski and other critics assert that some credit card issuers or their representatives, with the tacit support of school administrators, engage in predatory tactics to trap students in pools of debt, often before they have the knowledge and resources to stay afloat.
Card issuers offer money, student education
Issuers of student credit cards strongly disagree. They defend their campus programs, saying student credit cards can help college students manage cash flow and teach them how to manage debt. In addition, issuers note, their college relationships contribute hundreds of millions of dollars to schools hit hard by budget cuts and, now, by an economic meltdown that squeezes university budgets ever tighter.
Some large companies sponsor on-campus financial literacy seminars to guide students and other credit newbies toward proper money and debt management. Wells Fargo offers three online courses for students. Bank of America, which is especially active in the student market, provides young customers with a financial literacy handbook and a guide to the proper use of credit.
Bank of America also applies special terms to student credit cards, including interest rates that will not increase for any reason, low initial credit lines, and a $2,500 cap on available credit, says company spokeswoman Betty Riess.
We take a fair and responsible approach to lending.
|— Betty Riess |
Bank of America spokeswoman
“When we provide a credit card to students, the objective is to start building a long-term banking relationship with them and create that foundation,” she says. “We take a fair and responsible approach to lending.”
Consumer advocates and student credit card issuers each cite studies backing their positions.
Consumer group study: Enticements abound
In March 2008, Mierzwinski co-authored a U.S. PIRG report entitled “The Campus Credit Card Trap: A Survey of College Students and Credit Card Marketing.”
The study of more than 1,500 students on 40 campuses in 14 states found that three quarters of the respondents had paid at least some attention to on-campus solicitations, often enticed by free pizza or sandwiches or other gifts. Eighty percent received mail from card companies. Twenty-two percent received an average of nearly four phone calls a month from credit card issuers.
The result: Sixty-six percent of the students carried at least one card, with 46 percent of all students responsible for their own card debts. More than half of them used cards for day-to-day expenses. Balance-carrying college freshman who were responsible for their own cards owed an average of $1,301. By the time they became seniors, that balance doubled to $2,623.
One quarter of the students surveyed had been hit by a late fee. One of six had gone over their credit limit. Six percent already had at least one card canceled for nonpayment, absorbing significant damage to their credit scores while still in college.
“The findings confirm that students are using credit cards in significant numbers and that a significant number are paying the price through late fees, high balances and delinquencies,” Lindstrom told a U.S. House of Representatives subcommittee during a June 2008 hearing. “The findings also show that banks are marketing aggressively to students through a variety of channels.”
Bankers’ cite study showing responsible students
Credit card issuers object to what they describe as inaccurate generalizations. They also say that college students are adults and should have the right to decide for themselves how to handle credit, that many students use credit conservatively and wisely, and that most card issuers conduct themselves responsibly.
“Our card people follow all the rules,” says Riess, the Bank of America spokeswoman. “We comply with all campus and state regulations.”
The industry also points to the less dramatic conclusions produced by another 2008 study, this one conducted by Student Monitor LLC, a firm that specializes in college student market research.
That report found that only 34 percent of college students have a credit card in their own name, that 73 percent of all students with a bank-issued Visa or MasterCard have a savings or checking account at the same bank (suggesting a relatively mature and comprehensive banking relationship), the average unpaid balance is $452 (down from $559 in 2007), and a plurality had applied for the card in person at a bank.
“Anecdotes of student problems in the card area fail to paint the real picture that students, as a broader group, are in fact managing their credit obligations well … ,” Kenneth Clayton, a representative of the American Bankers Association, told the same House subcommittee addressed by Lindstrom.
“Banks recognize that applying for a credit card may be a college student’s first independent experience with the bank and want it to be the start of a positive, lifelong customer relationship,” Clayton said. “As such, banks have a vested interest in responsible underwriting, so as to ensure ongoing customer satisfaction.”
Still, on-campus or near-campus lures can be powerful, and many students find them irresistible. Offers of gifts or free food in return for a completed credit card application. School-branded “affinity” cards. Relentless marketing by telephone, e-mail and snail mail.
All have been common features of daily life on many campuses, and all are coming under increasing attack — or at least greater vigilance — by and from consumer advocates, government officials and school administrators.
“Quite a few campuses have banned credit card solicitations on campus,” says Kaaryn Sanon, director of communications for NASPA, which represents more than 11,000 student affairs administrators on nearly 1,400 U.S. campuses.
State regulations, complicated landscape
In recent years, Texas, California, New York, Oklahoma and a number of other states have passed laws restricting or regulating credit card marketing on campuses.
“More and more colleges themselves, state legislators and state attorneys general are starting to question the too-close ties of colleges and universities with student lenders, credit card companies and now other vendors,” Mierzwinski says. “Over the next few years, you’ll see more, not less, attention to the activities of credit card companies on college campuses.”
That will be a complicated process because policies can vary widely, even within elements of a single university system.
For instance, Florida Atlantic University, a branch of Florida’s state university system, bars credit-card issuers from its seven campuses that serve 26,500 students, though it does allow BankAtlantic to promote savings and checking accounts.
“Part of the nurturing process for students is to teach them how to handle credit responsibly,” says Dennis Crudele, the school’s associate vice president for financial affairs. “Florida Atlantic University hosts credit seminars throughout the year to teach students how to acquire and handle a credit card efficiently.
“FAU limits credit card companies from soliciting students on campus in order to curtail the potential possibility of allowing students to get themselves in a credit bind,” he says
Big bucks for selling students’ info
At the same time, a lucrative contract binds boosters of Florida State University, another branch of the same state university system, closely to Bank of America’s credit card program.
The 2002 pact, posted by the Consumer Warning Network, allows MBNA America Bank, later acquired by Bank of America, to market cards bearing FSU trademarks at least a dozen times a year on campus. It requires FSU to share contact information about 225,000 students and alumni. It guarantees $10.7 million in payments to the school through 2009.
It is not unusual. Similar contracts abound between banks and universities and colleges.
Bank of America alone has marketing agreements with various groups on 700 U.S. campuses, Riess says, though she noted that the vast majority of the customers who arrive through those pacts are alumni, sports fans, parents and other nonstudents.
The bank’s website offers “affinity” cards linked to 42 schools, their alumni associations or other related groups. Among those schools: Arizona State University, California Polytechnic State University, Dartmouth College and Ohio State University.
“With every new account that is opened and every purchase made, Bank of America will make a contribution to Ohio State University — at no additional cost to you,” the OSU/Bank of America offer says. Similar language appears on most of these offers.
Creola Johnson, a law professor at Ohio State, conducted a study in 2005 asserting that credit card companies “swoop down every fall on American college campuses looking for freshman or ‘fresh meat.'”
Her description of the scene resonates with many students, parents, teachers and others who have witnessed a process called “tabling” — an area where credit card issuers and other commercial entities display their wares and compete for the attention of passersby.
In a ‘carnival atmosphere’ of blaring music and free food, the credit card companies set up tables spread with glossy promotional brochures and loaded with free T-shirts, Frisbees and other gifts to lure students into applying for credit cards.
|— Creola Johnson |
Ohio State University law professor
“In a ‘carnival atmosphere’ of blaring music and free food, the credit card companies set up tables spread with glossy promotional brochures and loaded with free T-shirts, Frisbees and other gifts to lure students into applying for credit cards,” Johnson wrote. “Company representatives do not talk about the interest rates or fees associated with the cards. Presumably, that information is contained in the brochures. Instead, the credit card vendors emphasize the free items and an easy way to buy clothes and books or pay for spring break vacations.”
In many cases, when campuses have acted to bar or regulate tabling, credit card issuers or their representatives simply moved a block or so off campus, setting up in pizza parlors or sandwich shops.
Frosh welcome: 1st week, 8 card offers
Johnson’s research suggests that entering freshmen receive an average of eight credit card offers during their first week of school, followed by regular solicitations by mail.
Her study was based in part on a seminal report issued in June 2001 by the U.S. General Accounting Office, now known as the Government Accountability Office.
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The carefully nuanced, 73-page GAO study found that credit cards “were generally perceived as advantageous to college students … but some university officials and debt counseling services told us that they believed that college students were more likely than other types of credit card users to run up debts they could not pay because of their financial inexperience.”
Now, Johnson says, in light of her research, the GAO report, other studies and unfavorable media attention, Ohio State’s campus in Columbus has taken some action.
“My sense is that the vendors are still welcomed, but that universities are trying to put more restrictions on when and where they can solicit on campus,” Johnson says. “Here at OSU, the solicitations are primarily confined to in front of the stadium on game days.”
Other schools are taking more dramatic steps. Iowa’s three public universities, in the wake of critical reports in The Des Moines Register and news that Iowa college students graduate with one of the nation’s highest debt loads, reportedly are halting the marketing of university-branded credit cards to students.
Finding a balance
The recent U.S. PIRG study found that most students support a variety of measures to restrict on-campus activity by credit-card issuers, though Lindstrom says that neither she nor most other critics are absolutists.
Students want to have credit cards, she says, and no one wants to ban them.
“Ultimately, we’re just trying to find a way for students to grow into their responsibilities appropriately and not be preyed upon on campus by someone dangling a piece of nice, hot pizza in front of their face and asking them to apply for a credit card,” Lindstrom says.
“No student is going to ask, ‘Gee, what’s the interest rate after the promotional period,’ when they’re hungry and they see that pizza. We just want the presence on campus to be cleaned up a bit.”