A slice of pizza or a free T-shirt is often all it takes to lure a college student into filling out a credit card application that could haunt them for years to come, but passage of the College Student Credit Protection Act (AB 262) will regulate this type of marketing on California campuses.
AB 262 directs college campuses in California to disclose exclusive credit card marketing arrangements with banks, prohibit the companies from offering gifts as incentive to fill out credit card applications and urges revision of a policy that exempts many banks from campus regulations in the University of California system.
The bill, introduced earlier this year by Assemblyman Joe Coto, D-San Jose, was signed by Gov. Schwarzenegger on Oct 14. Pierce College has been ahead of the game on this issue according to Esther Cohen, administrative secretary, who said that credit card marketing has been banned on campus for about five years because it encouraged irresponsibility.
“Students charge like there’s no tomorrow,” Cohen said. “They just have a ball.” Setting up booths all over college campuses, credit card companies thrive off of active campuses filled with financially-dependent and independent students alike.
While some of the common attention-grabbing incentives include free food, T-shirts, coffee mugs or pens, some companies have even offered small “bounties” of $5 or $10 for every application a student could convince their friends to fill out.
The fact that credit card companies encourage easy minimum payments furthers the convenience of maintaining a debt, to be worked off over many years to follow.
Failure to keep up with payments can damage a consumer’s credit score, making it difficult to qualify for anything from a mortgage to a phone line, as well as raising the consumer’s interest rates and limiting services available to them.
Raven Vilardo, a 19-year-old early childhood education major, uses her card sparingly to minimize these risks. “I only use it for school and in emergencies,” Vilardo said. “I don’t want to take a chance of running up the rate.”
In a 2004 survey of 1,413 students ages 18 to 24, student loan company Nellie Mae found that the freshman year is the most prevalent time that students sign up for credit cards, with 56 percent saying they were 18 when they signed up.
The further into college the student is, the more cards they are likely to have – 91 percent of final-year students have a credit card, and 56 percent of these students carry four or more cards. The average final-year balance is $2,864.
According to a story on BusinessWeek.com, JPMorgan Chase, a financial firm with over 40 affinity deals with universities, might pay each university sums surpassing $2 million a year for the right to access student lists and have exclusive marketing rights at sports games and other events.
The U.S. Public Interest Research Group (U.S. PIRG) highlights what is referred to as “the worst credit card industry practices” through their Ford Foundation-funded project, Truth About Credit.
Many cards offer low “teaser” interest rates that expire after 90 days or a late payment, jumping up to 20 percent or 30 percent APR.
As well, the credit card companies tend to issue numerous small-limit cards, to confuse the consumer and allow for more potential late fees, which average $35.
A particularly unpredictable practice is called universal default, where the card user’s interest rate can rise dramatically even if the consumer pays the bill on time, never missing a payment.
All it takes is an inquiry about a car loan or a new card, or perhaps a missed payment on another account.
Breann Castillo, an 18-year-old journalism major, carries one credit card and pays her balance off fully each month.
“I know myself. And if I let myself get into debt, I’ll just slip further and further. It’s a vicious cycle,” she explained
“It’s like smoking a cigarette or having sex – once you do it, the reason to not do it again greatly diminishes.”