Credit cards, particularly for college students, can allow students to buy school supplies, pay for tuition, and set up an early history of credit ^[i] They can also entrap students in debt, representing a higher risk of being overwhelmed by debt.^[ii] Having a credit card as a student can be a life-altering choice as there are legitimate reasons a student may need a credit card.^[iii] In 2008, 56% of undergraduates held credit cards at the age of 18 and 91% of students had at least one credit card by their final year of college; by graduation, 56% of students carry four or more cards.^[iv] From 2004 to 2008, the average college student card debt went up from $2,169 to $3,173.^[v] While making a choice about having a credit card as a student can be difficult, credit card marketing can push students to obtaining credit cards for the wrong reasons. Marketing strategies such as on-campus marketing, rewards, college affinity cards and college logos on credit cards have been effective ploys to get students to register for credit cards.^[vi] Leading up to 2009, Congress became concerned about credit card debt and the risk of defaulting on credit cards.^[vii] In 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) was passed.^[viii] The CARD Act’s young consumer provisions, particularly for college-age students, focuses on restricting on-campus marketing and disclosures to help young people make a more educated choice in signing up for a credit card.^[ix] 

This Article will further explore credit card marketing and the college campuses and students the marketing practices affect, and the key regulations that were meant to control credit card marketing. In addition, the Article will explore the outcomes of the regulations and additional policy considerations for further limiting credit card marketing. Section I introduces the key marketing strategies that have been used or are still in use on college campuses. Next, in Section II, the Article will explore the Card Act, Truth in Lending Act (TILA), and the Fair Credit Reporting Act (FCRA).  The outcomes of regulations will then be examined in Section III, with criticism regarding the regulations in Section IV. This Article then concludes with policy recommendations to further strengthen the regulations of credit card marketing in Section V.

Marketing Practices and the College Students They Affect

College students are prime targets for credit card issuers because they don’t have sufficient financial knowledge and are expected to experience a sudden increase in wealth once they graduate and get a job, going from zero dollars to an average of $50,556 for a person holding a bachelor’s degree.^[x] Over the lifetime of a college student with a bachelor’s degree, the expected income is $1.4 million dollars.^[xi] The employment percentage of college graduates is significantly higher than those without a bachelor’s degree, with employment of those with a bachelor’s degree being 89% versus someone with a high school degree being 67%.^[xii] As for the personal financial knowledge of college students, one student survey found that only 14.6%  of 725 students knew what their interest rates were for credit cards that they carried.^[xiii] In the same survey, only 9.4% of the students paid off their credit card debt in full each month, which was drop from 32% in 2003.^[xiv] This lack of financial knowledge makes college students more vulnerable to aggressive credit card marketing.^[xv]

Before 2009, credit card marketing for college students increasingly involved credit card representatives going on campus and giving out free gifts, such as free pizza, shirts, or water bottles.^[xvi] Such campus visits included setting up tables and handing out these free gifts in exchange for filling out registration forms for credit cards.^[xvii] Credit Card issuers targeted college students because a majority of the demographic group do not have credit cards.^[xviii] The notion that a college student’s first credit card will be the primary credit card used, a “top-of-the-wallet” card, was and remains a huge incentive driver for credit card issuers to sign up college students.^[xix] To get college students to commit to a credit card, credit card issuers have solicited offers by mailing credit card offers and calling college students about credit cards.^[xx]

A main strategy that credit card issuers have used to sign up college students have been affinity card agreements between the college and the credit card issuers.^[xxi] The “college affinity cards” that the credit card issuers push out use the college institution’s name or logo in exchange for payments.^[xxii] The payments to the colleges can be very lucrative. In 2009 before the CARD Act, colleges received more than $84.4 million dollars in affinity card agreements with major banks.^[xxiii] These deals aren’t limited to credit card issuers wanting college logos, the credit card issuers made deals that included access to student contact information and special access to university events.^[xxiv] At Brown University and the University of Michigan, both universities had affinity card agreements with Bank of America worth over $2.3 and $2.5 million dollars to give access to student contact information in addition to college logos.^[xxv] The credit card issuers use the contact information to then mail or call college students.^[xxvi] Even with the recent regulations to exclude anyone whose credit report indicates they are under 21 from the prescreened lists, young consumers can still get preapproved offers if the credit card companies have a young consumer’s name on the list.^[xxvii] Credit card marketing won’t go away but needs to be better regulated. In 2004, the average credit card debt for a college student was $2,169, by the time of the CARD Act in 2009, the average credit card debt ballooned to more than $4,100.^[xxviii]

Legislation that addresses marketing practices

The primary legislative acts that have addressed the concerns of credit card marketing to college students are the CARD Act, TILA and the FCRA.^[xxix] These acts have driven down the amount of registered student credit cards among college students.^[xxx] Of particular focus is the young consumer provisions of the CARD Act, as it amended TILA and FCRA^[xxxi]

Provisions in the CARD Act protecting college students from credit card marketing

The first provision this article focuses on is the elimination of on campus promotions and giveaways.^[xxxii] The CARD Act amended TILA to prevent credit card issuers from signing up college students in exchange for gifts or giveaways.^[xxxiii] This exchange is defined in the federal regulation as an “Inducement.”^[xxxiv] Inducement is “any tangible item to induce such student to apply for or open an open-end consumer credit plan offered by such card issuer or creditor, if such offer is made”^[xxxv] There is concern that “tangible” is too narrow a definition, as credit card issuers can give reward points or discounts, and there is a call for broadening the definition.^[xxxvi] As mentioned earlier, before the CARD Act, credit card issuers could give free t-shirts, pizza and other gifts at college campuses.^[xxxvii]  In order to clear up the ambiguity of “on…near the campus,” the Federal Reserve Board explains that it is 1000 feet within or of a campus.^[xxxviii] The effects of the CARD Act and the amendment on TILA has been evident.^[xxxix] However, it doesn’t appear as if credit card marketing on or near campus has been eliminated, and the fear is that credit card marketing on campus still exists through more subtle means like alumni networks and affinity card agreements.^[xl]

The second provision that this article focuses on is prescreened offers through mail.^[xli] Prescreened offers are “preapproved” offers that are based on information in your credit report or simply contact information^[xlii] Before the CARD Act, students would be on mailing lists for preapproved credit card offers that would come in the mail at a very high rate, with 69% of students in one survey reporting to have received a preapproved credit card through the mail.^[xliii] The CARD Act made an amendment to the FCRA to forbid credit reporting agencies from providing credit card issuers credit reports for people under twenty-one.^[xliv] The preferred choice for credit card marketing for credit card issuers has been direct mail and financially at-risk students were found more likely to sign up for credit cards through direct mail.^[xlv] Though the CARD Act does regulate credit reports from reporting young consumers and college students, credit card issuers can still obtain student information through email or commercial mail lists.^[xlvi] A major concern moving forward is that the CARD Act has not eliminated unsolicited preapproved credit card offers, with one study reporting that 58% of college students under twenty-one received a preapproved credit card offer in 2011.^[xlvii]

The third provision that this article focuses on is affinity card agreements between credit card issuers and colleges.^[xlviii] Affinity Card agreements The CARD Act requires that colleges “publicly disclose any contract or other agreement made with a card issuer or creditor for the purpose of marketing a credit card.”^[xlix] In addition, the Credit Card issuers must also provide to congress any agreements made with colleges.^[l] Before the CARD Act, there was little information regarding the affinity card agreements and the terms between the credit card issuers and the schools.^[li] The CARD Act’s provision regarding affinity card agreements was not just to protect college students, but anyone affected by the affinity card agreements, requiring disclosures beyond those of affinity card agreements if young consumers are a potential target.^[lii] The CARD Act’s disclosure requirement may have made the affinity card agreements more transparent, but they still exist today.^[liii] According to the US Government Accountability Office (“GAO”) study done in 2014, affinity card agreements decreased 41%, from 1,045 agreements in 2009 to 617 in 2012.^[liv] The concern with the provision is that it doesn’t impact the affinity card agreement terms.^[lv] A study of 300 affinity card agreements showed little to no substantial change in the agreement after the CARD Act, with a majority of those affinity card agreements having terms that exchange student information.^[lvi]

Provision in the CARD Act protecting college students without ability to pay

The ability to pay provision sets up a safety net for college students to prevent them from signing up for credit cards that they can’t afford.^[lvii] Before the CARD Act, the practice of credit card issuers was to extend or open credit to college-aged consumers with little or no consideration of their ability to repay the debt they incur.^[lviii] All applicants of credit cards under the CARD Act must have the ability to pay before receiving an extension of credit or getting a new credit card from credit card issuers.^[lix] For students, they must show “financial information indicating the consumer has an independent ability to make the required minimum periodic payment” or “[a] signed agreement of a cosigner, guarantor, or joint applicant who is at least 21 years old to be liable for the debt incurred by the student.^[lx] However, there are concerns that the language for the ability to provision is too vague.^[lxi] Though the language of the ability to pay provision states that a “consumer’s independent ability to make the required minimum periodic payments under the terms of the account [is] based on the consumer's income or assets and current obligations,” the Federal Reserve Board has not elaborated on the guidelines.^[lxii] This ambiguity is left to the credit card issuer to determine what the ability to pay means for college students.^[lxiii] The ability to pay provision has the ability to provide a stronger safety net for college students when signing up for credit cards, the definition and guidelines need to be more specific.^[lxiv]

Provision in the FCRA for credit report information

The US government has stated the importance of credit reporting agencies, stating that “consumer reporting agencies have assumed a vital role in assembling and evaluating consumer credit and other information on consumers.”^[lxv] Because of the importance of having accurate credit scores, especially for younger consumers, all consumers have access to free credit reports.^[lxvi] According to a 2013 survey by the GAO, only 47% of consumers know that they are entitled to a free credit report.^[lxvii]

In 2003, Congress amended FCRA by passing the Fair and Accurate Credit Transactions Act (“FACTA”)^[lxviii] “…to improve the accuracy of consumer records, [and] make improvements in the use of, and consumer access to, credit information.”^[lxix] Before FACTA, consumers were limited in how they could access their credit reports, hindering consumer’s ability to get transparent and accurate credit scores.^[lxx] These limiting factors were if a consumer: (1) is unemployed and intends to apply for employment in the 60-day period beginning on the date on which the certification is made; (2) is a recipient of public welfare assistance; or (3) has reason to believe that the file on the consumer at the agency contains inaccurate information due to fraud.^[lxxi] FACTA allowed consumers to receive a free copy of their credit reports once every twelve months, broadening the limiting factors within the previous law.^[lxxii] College credit card consumers can access their credit report information by requesting a free copy of their credit report from Equifax, Experian, and Transunion, the “big three” nationwide consumer reporting agencies.^[lxxiii] The consumer reporting agencies have a centralized location (www.annualcreditreport.com) for consumers to request their annual copy.^[lxxiv]

Outcomes on Credit Card Marketing since the CARD Act

Since the CARD Act was passed in 2009, there have been studies to see if different credit card marketing factors, such as college student credit card registration and affinity card agreements, having decreased over time.^[lxxv] In overall metrics, the number of credit card holders between the ages of eighteen to twenty have deceased.^[lxxvi]

Affinity card agreement statistics

The data from the Federal Reserve Board and the Consumer Financial Protection Bureau (CFPB) reported there were roughly 1,045 affinity card agreements between credit card issuers and universities in 2009.^[lxxvii] The number of credit card holders in 2009 that were registered from the affinity card agreements was roughly 2.04 million, consisting of alumni, college students, parents, employees, and others.^[lxxviii] After the CARD Act was signed, the number of affinity card agreements and credit card holders decreased in 2012, with 617 affinity card agreements and 1.22 million credit card holders.^[lxxix] With the overall decrease in affinity card agreements across the board, the types of affinity card agreements did not decrease at similar rates, with alumni association affinity card agreements showing a slighter decrease of 23%.^[lxxx] The slighter drop in alumni association affinity card agreement may be explained by the shift of credit card company focus to a slightly older age demographic.^[lxxxi]

Mail and e-mail solicitations

The GAO, using surveys by the Student Monitor, a market research firm specializing in the college student market, found that college students received a decreased number of mail and email solicitations from credit card issuers.^[lxxxii] The proportion of students who signed up for a credit card based on direct mail solicitation dropped from 36% in 2000 to 6% in 2013.^[lxxxiii] In 2013, college students reported receiving significantly fewer mail (1.6) and e-mail solicitations (1.4) in a typical month than respondents in 2007 (5.6 and 9.1, respectively).^[lxxxiv]

Criticism of the Legislation Passed

The criticism of the provisions in the CARD Act, TILA, and FCRA is that more could be done to protect credit card consumers.^[lxxxv] As the regulations currently stand, some critics argue that the regulations have significant loopholes that credit card companies can manipulate.^[lxxxvi] Because credit card issuers have an incentive to target college students, the critics argue the regulations need more teeth.^[lxxxvii]

Prescreened offer provision in the Card Act

Prescreened offers were not forbidden by the CARD Act, but were meant to be reduced by limiting the access credit card issuers had to college student’s information.^[lxxxviii] The criticism of the prescreened offer provision is that the provision does not do enough to prevent credit card issuers to access student information.^[lxxxix] Credit card issuers can still obtain student information from commercial mailing lists and from universities through affinity card agreements.^[xc] Credit card issuers can also contact students directly through email because the CARD Act has no language in the provision regarding electronic marketing to students.^[xci] The criticism of the prescreened offer provision is that credit card issuers can still retrieve student information and that college students will still sign up for credit cards through prescreened offers, with some pockets of US colleges reporting nearly 60% of college students continuing to receive pre-approved credit card offers in the mail.^[xcii]

Affinity card agreement disclosure provision in the CARD Act

The CARD Act’s provision requiring disclosures of affinity card agreements is a major step forward in shedding light on a formerly secretive deal-making process between universities and credit card issuers.^[xciii] The affinity card agreements, in the eyes of consumers and Congress, were exchanges of “large cash payments…for student’s personal information.”^[xciv] The CARD Act’s provision requiring disclosure of affinity card agreements has not fully eliminated affinity card agreements on university campuses, with recent surveys stating that 617 affinity card agreements still exist between universities and credit card issuers.^[xcv] In addition, the agreements that still exist are still focused on student information, with alumni credit card marketing growing.^[xcvi] Though the disclosures have made transparency of the deals more evident, and there is a decrease in affinity card agreements, the criticism is that the existing deals still target college consumers.^[xcvii]

On campus marketing provision of TILA

The restrictions of inducements and on campus marketing is another step forward in helping regulate credit card marketing to college students.^[xcviii] The regulation’s elimination of promotional giveaways like free T-shirts, pizza, or other gifts eliminates the first glance incentives to sign up for credit cards.^[xcix] The criticism of the provision however is that the clarifications and interpretations by the Federal Reserve Board on the provision has reduced the teeth of the provision.^[c] The Federal Reserve Board’s definition of “inducement” is “when a tangible item is offered to a person whether or not that person applies for or opens an open-end consumer credit plan, the tangible item has not been offered to induce the person to apply for or open the plan.”^[ci] Hypothetically, credit card issuers could go on campus and still give free gifts to students as long as they were offered to all students.^[cii] The Federal Reserve Board has also narrowed the definition of a “tangible item,” which does not include “discounts, rewards points, or promotional credit terms.”^[ciii]  This narrow definition is a significant loophole for credit card issuers to still be able to give promotions, via discounts, to college students.^[civ]

Policy Recommendations to Strengthen Credit Card Marketing

Recognizing the gaps in regulation regarding credit card marketing, the following recommendations would help close the gaps and protect college students from jumping into credit card agreements.

Universities with affinity card agreements provide mandatory personal finance courses in curriculum

Universities in the past few years have provided personal finance courses to students as student debt has become a more serious issue in the last few decades.^[cv] However, these courses are not usually required and therefore students may not be interested in taking a course on personal finance during their college careers, though there is a push from some universities to provide personal finance courses and seminars.^[cvi] Universities with affinity card agreements with credit card issuers should provide personal finance courses to students who sign up for credit cards through the credit card issuers. Though there are independent organizations that teach personal finance and responsibility, such as GINGA Financial Literacy, Inc., the convenience for college students to take such courses should be in consideration.^[cvii] With regulations aimed at disclosing affinity card agreements, education on personal finance regarding credit cards would help close the gap between disclosure and education.^[cviii]

On campus marketing terms regarding “inducement” and “tangible item” need to have broader definitions

On campus marketing terms of “inducement” and “tangible item” within the federal provision of TILA need to be broadened as the loopholes within the provision provides credit card issuers with an opportunity to continue giving gifts to students.^[cix] Because of the narrow definitions the Federal Reserve Board has interpreted the provision in TILA, credit card issuers can find ways around the regulation that was meant to restrict on campus marketing.^[cx] If inducement were to be broadly defined as “when a tangible item is offered to a person whether or not that person applies for or opens an open-end consumer credit plan, [by a credit card issuer or creditor] on the campus of an institution of higher education,” the loophole regarding free gifts may be closed.^[cxi]

Free credit report on request and notification of free credit report

College student credit card marketing regulation should include at-will disclosure and transparency in terms of credit scores, as college students with knowledge of their personal finances would be more responsible. The one credit report a year from the three credit reporting agencies is not enough for college students, or consumers, in today’s consumer practices.^[cxii] Because college students may not be aware that they are entitled to receive a free credit report on request, an email notification from either the university or from the credit reporting agencies directly would provide more transparency and awareness of credit score.^[cxiii] Credit reports on request would keep college students directly in touch with their credit scores and their personal finances.^[cxiv]

Conclusion

Credit card marketing to college students has according to several measures since regulations on various part of credit card marketing practices have taken place. However, the regulations established by the CARD Act, TILA, and FCRA should be considered a step in the right direction, rather than fully established regulations, as credit card issuers can still pursue college students and young alumni. Policy recommendations such as the ones recommended in this article are ideas to help close the loopholes that exist in credit card marketing to college students and to American consumers. It is up to the relevant agencies and government, as well as universities, to give college students the best chance to avoid credit card debt.

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