Personal Finance

January 17, 2014

Card Act is putting the clamps on rampant credit card marketing at colleges

Nearly five years after Congress passed the legislation, there is fresh evidence that the regulations have accomplished their goals.

Put this solidly in the victory column for college students.

Nearly five years after Congress passed legislation known as the Card Act that was broadly aimed at preventing aggressive marketing of credit cards on college campuses, there is fresh evidence that the regulations have accomplished their goals.

The Consumer Financial Protection Bureau, the watchdog agency charged with overseeing the regulations, issued an annual report in early January on credit card arrangements between banking companies and colleges, alumni associations and other campus-related groups.

The report, which reflected 2012 data, found a “continuing decrease in the number of colleges and universities sponsoring credit card programs, the number of new accounts being originated … and the compensation paid to the institutions” of higher learning.

The regulations signed by Congress in 2009 were intended to put an end to the days when card issuers set up on the campus quadrangle and handed out free pizzas or T-shirts to get students to sign up for plastic.

Never mind that many of the students were fresh out of high school and hadn’t a clue about interest rates and late fees.

While I’m a firm believer in students taking personal responsibility for their decisions, the easy access to credit took a toll. Many students racked up ridiculous levels of debt and are still digging out from under their poor choices.

The cozy relationship between some credit card issuers and colleges and universities was put under the regulatory microscope, with special attention on the money that schools were receiving in exchange for giving financial firms access to potential customers.

As for the student credit cards, many came with high fees and other restrictions and were not the best products on the market.

Here’s what the Card Act imposed on the marketing of credit cards to college students:

• Financial institutions must disclose any agreements they have with schools to offer products to students.

• Financial institutions may not use gifts to entice students to apply for plastic.

• Applicants under the age of 21 must have written documentation detailing their ability to pay for their credit card purchases or have a cosigner over the age of 21.

• Credit card issuers must submit annual reports to the federal consumer agency about the terms and conditions of their college-related cards.

Based on the latest data, the consumer protection bureau noted that the number of marketing agreements between card issuers and schools declined from 1,045 in 2009 to 617 in 2012. In addition, the total payments by card companies to colleges decreased from $84.4 million when the Card Act was enacted to $50.4 million in 2012.

A subsidiary of Bank of America, FIA Card Services, is the dominant plastic provider on campuses, with nearly two-thirds of the 617 marketing agreements in 2012, followed by Capital One, U.S. Bank and Kansas City-based UMB Bank.

The final telling data point: The number of accounts opened by college customers dropped from about 2.1 million in 2009 to 1.2 million as of 2012.

Bill Hardekopf, publisher of the card comparison website, said the restrictions on what financial firms can and cannot do have largely been good for students.

“Some colleges and universities did not want to be part of these types of partnerships any longer, since it became more public that they were taking part in these agreements,” he said. “And I think that these provisions hurt the profitability of some of these agreements, so the issuers got out of them.”

However, the laws didn’t fix everything. There are still many young students who haven’t received any financial training or bare minimum guidance so they will be responsible with plastic when they get out on their own.

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