The Campus Credit Card Trap
Executive Summary
Credit card lending is enormously profitable. According to annual
Federal Reserve Board of Governors’ (FRB) Reports to Congress, it is
the most profitable form of banking. But the credit card industry is
saturated. The average adult had nearly five credit cards in 2006 and
the average household received 5.7 credit card solicitations monthly in
2004, according to the 2007 FRB report.1 Banks seeking even greater
profits from credit cards have several options:
-First,
as has been widely reported and is the subject of Congressional
inquiries, banks can squeeze their existing customers for greater
profits in several ways: including (1) using a variety of rewards and
tricks such as encouraging extremely low minimum payments to maintain
highly-profitable high revolving card balances; (2) raising interest
rates on those balances through a variety of traps including imposition
of penalty interest rates for late payments and changing due dates to
encourage more of those late payments; (3) using misleading teaser
rates and, (4) raising the rates of otherwise good customers by
claiming that their credit score had declined or that they were late to
another lender (called “universal default”).
-Second, banks can
market to customers of other credit card companies, urging them to
switch by offering low teaser rates on balance transfers and other
incentives. But this marketing is expensive both because of the cost of
the zero-interest offers and the cost of sending out the billions of
solicitations;
-Finally, banks can seek out customers who have
never had a card. College students are among the most prominent targets
for this marketing.3 They are young and understand that they need
credit to get ahead in the world. Some need credit because of the
rising cost of a college education. Finally, most of them are clumped
together on campuses that they either commute to or live at. This makes
them easy to target. Companies use a variety of techniques, from buying
lists from schools and entering into exclusive marketing arrangements
with schools to marketing directly to students through the mail, over
the phone, on bulletin boards and through aggressive on-campus and
“near-campus” tabling-- facilitated by “free gifts.”
This study
is an in-person survey of a diverse sample of over 1500 students,
primarily single undergraduates, at 40 large and small schools and
universities in 14 states around the country conducted between October
2007 and February 2008. It analyzes how students pay for their
education, how many use and how they use their credit cards and,
finally, their attitudes toward credit card marketing on campus and
whether or not they support principles to rein in credit card marketing
on campus.
The findings confirm that students are using credit
cards in significant numbers and that a significant number are paying
the price through late fees, high balances and delinquencies. The
findings also show that banks are marketing aggressively to students
through a variety of channels. Finally, the findings demonstrate that
an overwhelmingly majority of students support limits on credit card
marketing on campus to rein in unfair bank practices.
Get more
resources, including contracts between banks and universities, here:
http://www.truthaboutcredit.org/campus-credit-card-trap/resources
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