Credit card reform has companies treading lightly on campuses
WASHINGTON — Credit card reform came too late for 20-year-oldTamaira Shaw.
The junior at the University of the District of Columbia got apreapproved credit card from Bank of America in the mail herfreshman year of college. It had her name on it and a $500 limit,and she took it as a license to spend. within three days, shebought a new cellphone, new clothes and new textbooks — and maxedout her card. her mother is still helping her pay off the balance– plus hundreds of dollars in finance charges and fees.
“They randomly sent it to me,” Shaw recalled this week as shestarted another semester at UDC. “I was just excited.”
The landmark federal legislation that overhauled the credit cardindustry is now reaching into college campuses to protect studentslike Shaw as they return to school and attempt to juggle not onlytheir education and social lives but also how to pay for itall.
The law, which was passed in 2009 and phased in this year, bansissuers from providing credit cards to people under age 21 unlessanother adult co-signs for it or the student can show anindependent source of income. It also prohibits the companies fromoffering freebies, such as T-shirts or pizza, in exchange forsigning up for a card on campus or at school events, and collegegroups are required to make public any partnerships they have withcard issuers.
Consumer advocates have long criticized the industry for wooingyoung people who often don’t realize the risks involved, suckingthem into a vicious cycle of debt.
“Their goal is to hook you on credit,” Ed Mierzwinski, consumerprogram director of the advocacy group U.S. PIRG, said of theindustry’s business model.
The new credit card law was designed to target what lawmakersdubbed “unfair or deceptive” practices by issuers and implementedthe most sweeping change in the history of the industry. among themost aggressive provisions were banning interest rate hikes onexisting balances and prohibiting issuers from raising rates whentheir customers miss payments on an unrelated account, such as amortgage or an electric bill. The final phase of the law, whichtook effect Sunday, limits penalty fees and requires gift cards tobe honored for five years.
The legislation spells out unique protections for youngconsumers, an attractive market for card companies seeking to growtheir business. according to the student-loan company Sallie Mae,about 42 percent of college students have a credit card. in 2008,the most recent data available, students graduated college with anaverage credit card debt of more than $4,100, up from $2,900 fouryears earlier. and only 15 percent of freshmen had a zero creditcard balance, plummeting from 69 percent in 2004, Sallie Maesaid.
“If you were a student and you could fog a mirror, you could geta credit card,” said Adam Levin, co-founder of Credit.com andformer director of the New Jersey Division of Consumer Affairs.
Many students use credit cards for legitimate reasons, such asbuying textbooks and meals or building a credit history. Butlawmakers and consumer groups have attacked issuers forinappropriately marketing to students by holding giveaways oncampus, mining alumni association databases and negotiatinglucrative partnerships to provide university-branded credit cards.Several large issuers have been dialing back their promotions.Chase said it stopped using student mailing lists in 2006 and endedmarketing on campuses and at athletic events by 2008.
Bank of America said it no longer sets up marketing tables atcolleges, but it still maintains partnerships with roughly 700alumni associations, athletic departments and some Greekorganizations to offer college-branded credit cards to recentgraduates. for example, it has a $2.8 million, seven-year contractwith the Georgetown Alumni Association and its student creditunion, which gives it access to the groups’ mailing lists and paysa $50,000 bonus if the bank signs up 1,800 accounts in a year. Onits website, the alumni association says the contract helpsstudents because it pays for reunions, grants and scholarships, aswell as a Sept. 11 memorial garden. The contract bans on-campusmarketing and limits the number of direct-mail and e-mailcampaigns.
Under the new law, card issuers must submit any contracts theyhave with collegiate groups to the Federal Reserve, which willcompile a report detailing the nature of the relationship. a Fedspokesperson said the central bank is currently reviewing more than1,000 agreements. Consumer advocates said they hope the legislationwill increase transparency for such partnerships.
Still, sometimes even the strictest oversight can’t stopstudents from making mistakes.
Melanie Mirowitz, 21, a senior at American University, said shegot a credit card with the blessing of her parents. they thought itwould be a good idea to help build her credit history-as long asshe used it responsibly, she said. but paying the bill slipped hermind for a few months, and she racked up $500 in penalty fees.
“That wasn’t a good conversation,” said Mirowitz, who now triesto pay her balance on time each month. “They don’t really explainit to you how it impacts you.”
AU law student Steve vonBerg, 30, said his credit cardinitiation occurred shortly after he graduated college. he rackedup $7,000 in debt to fund a start-up business, which eventuallyshut down. It took him four years to pay off the card, he said.
Now older and wiser, he offered this advice to the new crop ofstudents learning to juggle their budgets: “Don’t take it into barswith you. Realize it’s not free money.”
Credit card reform has companies treading lightly on campuses
