Published March 20, 2012
Credit card companies are turning to social media outlets such as Facebook to sign up college students, according to an analysis by University of South Carolina law professor Eboni Nelson.
In an article for the April issue of the Banking & Financial Services Policy Report, Nelson looks at the effectiveness of the Credit Card Accountability Responsibility and Disclosure Act of 2009 — the CARD Act — in protecting young adults.
Nelson, who researches and teaches consumer and higher-education law, found several examples of aggressive marketing practices and lax eligibility requirements by credit card companies despite the protections put in place by the law.
That is not good news for young people who are also piling up student loan debt, said Nelson, who received her J.D. from Harvard Law School.
The CARD law, administered by the Consumer Financial Protection Bureau, has curbed a variety of predatory practices that had been commonplace on U.S. college campuses, she said.
But in analyzing data from the financial industry, government and higher education and reviewing news reports, Nelson found credit card companies restricted from some of these practices found new ways of targeting college-age students.
Banned from using credit information to find potential applicants, companies have turned to the mailing lists of colleges themselves and rewards and loyalty programs to find young borrowers, Nelson said.
Marketers, banned from “tabling” on campus, have relocated to nearby off-campus locations and online via social media, such as Facebook, where they are offering promotional items and discounts, along with reward points and promotional credit terms, she added.
Also, colleges and alumni associations continue to enter into financial partnerships, although greater transparency and restrictions have led to fewer agreements, payments by issuers and new accounts.
For example, a 2010 survey showed 76% of University of Houston students reported having received a credit card offer since 2009.
Nelson questioned a common practice among card companies that allow students to use student loan proceeds as proof of independent income.
“The CARD Act stipulates that consumers under age 21 must show they can pay the bill themselves or must have a co-signer,” Nelson said.
“However, it is unclear what resources can be used as current income. What this means is that savings accounts, allowances, stipends, grants, student loans and scholarships can be used,” Nelson said.
“Also, the ability to pay only means the ability to pay the minimum monthly payments, which can be as low as $25. It doesn’t mean the ability to pay the total amount of the debt,” she added.
Citing the University of Houston survey, Nelson reported that nearly 30% of students who got a credit card said they used student loan proceeds as part of their income on the application.
Still, Nelson said, statistics show that the students’ use of credit cards has improved. Since 2009, the number of college students who own credit cards has dropped, and their credit card balances have risen only slightly in comparison with previous years.
A survey by Gallup and Sallie Mae reported a 27% decline in the number of college students who own credit cards since 2009, Nelson reported. Experian, a major credit reporting agency, shows credit card balances for 18- to 25-year-olds is growing at a slower pace: 0.4% in 2010, 2.4% in 2009, 12.3% in 2008 and 13.3% in 2007.
“These numbers are encouraging,” Nelson said. “However, it is unclear whether they are a result of the CARD Act. A tightening credit market, a recession and a growing preference for debit cards may also have contributed. Regardless, over indebtedness continues to be a problem for many young consumers, and greater attention should be paid to protecting them.”