Lawmakers Limit Aggressive Campus Marketing Tactics

By Dawn Handschuh, Personal Finance Writer   

The second of a three-part series...

Normally, an unemployed person with a practically non-existent credit history wouldn't stand a chance of getting an unsecured credit card. But at some point in the past 20 years, credit card companies recognized three unique things about the college student market:

  1. Its growth potential was huge and untapped;
  2. Developing a relationship with young adults early in life could lead to stronger brand loyalty and make it easier to cross-sell other credit products; and
  3. College students tend to rack up big-time expenses but can often count on their parents to bail them out if they get in a jam.

Aggressive credit card marketing on college campuses today ignores standard underwriting practices that consider factors like credit history, debt-to-income ratio and income. Credit card debt has increased bankruptcy filings among young adults, forced students to drop out of school and puts graduates in the position of starting out in life saddled with heavy debt.1 As a result of heavy debt loads and low or no income, the credit scores of students holding credit cards are typically very poor.

Since the marketing practices of many credit card companies have come under scrutiny, a number of states have passed laws to restrict or regulate on-campus marketing by credit card companies.

  • In California, credit card marketers can't use free gifts as enticements.2
  • In Oklahoma, schools can't sell student information to credit card marketing companies.2
  • A survey of Maryland's 12 four-year public colleges and universities showed that only four of the 12 schools prohibited any credit card marketing on campus.1 (Since the survey was completed, two more Maryland public colleges decided to ban the practice.) In March 2008, Maryland passed a law calling for public colleges to develop policies for educating students about credit card marketing.3
  • In Ohio, a pending lawsuit, filed by the state attorney general in 2007, charges Citibank and its marketer, Elite Marketing, with using deceptive marketing practices (in this case, free food supplied by a sandwich restaurant chain called Potbelly) to entice students into making credit card applications. Potbelly was initially named in the suit but was later dropped after it agreed to help educate students about credit card abuse. The partnership between Potbelly, The Ohio State University Moritz College of Law, and the Ohio Attorney General's office led to production of an award-winning documentary, Maxed Out, which was shown on college campuses throughout Ohio.4

Not every credit card lender markets on college campuses, and many offer financial literacy materials geared toward college students. But they also maintain that students must assume responsibility for their actions.

Also in the series on credit cards and students:
How to Responsibly Manage Credit Cards in College

Footnotes

1 "Graduating Into Debt: Credit Card Marketing on Maryland College Campuses," Maryland Consumer Rights Coalition and Maryland Public Interest Research Group, February 2004
2 "The Campus Credit Card Trap," U.S. Public Interest Research Group Education Fund, March 2008, www.truthaboutcredit.org (downloadable PDF)
3 "Marylanders Back Campus Credit Card Marketing Reforms," Southern Maryland Online, www.somd.com, March 3, 2008
4 "Attorney General Announces Agreement With Potbelly," press release, office of the Attorney General, State of Ohio, March 10, 2008 (downloadable PDF)