Beware of Creditors
By Consumers Union on Monday, August 24th, 2009
Consumers Union recently worked to pass the CARD Act which includes protections for college students from unscrupulous credit card companies. The most notable protection places restrictions on marketing to students by prohibiting card hawkers from providing gifts on campus in exchange for filling out a credit card application. The law also requires colleges to publicly disclose any marketing contracts made with a card issuer. The law also restricts card companies from issuing credit cards to consumers who are under 21 unless they prove they can afford it or have someone older cosign. These are great protections!
What is not so great is that they do not start until February 2010. That gives card companies roughly 5 months of open season on students. While the current laws on marketing to students vary from state to state and often from college to college, marketing is big business and has become a cash cow for Universities.
“Bank of America’s relationship with the university extends well beyond marketing at sports events. The bank has an $8.4 million, seven-year contract with Michigan State giving it access to students’ names and addresses and use of the university’s logo. The more students who take the banks’ credit cards, the more money the university gets. Under certain circumstances, Michigan State even stands to receive more money if students carry a balance on these cards.” (read whole NYTimes article)
Creditors have fought tooth and nail for decades to stop legislation like the CARD Act but they lost. What they did get is this long grace period before the law goes into effect; essentially an open season on campus to have one last shot at the lucrative student market.
Though it may not be the worst idea for a student to have a credit card while on campus it should be a measured decision and involve shopping around for the best deal and the right card. With rising costs of college tuition, books, and the cost of living, students are being saddled with more and more expenses. Paying for all of this with a high interest credit card debt could trap these young people for years.
“But debt incurred in college becomes a serious burden at graduation, especially in a recession in which jobs are scarce. A survey of more than 1,500 college students by US PIRG in Washington found that two-thirds had at least one credit card.”
A recent Sallie Mae report found that graduates leave school with credit card debt equaling $4,138 – a 44% increase since 2004. In addition to rising student loan debt.
So college students should arm themselves with a healthy dose: of skepticism about freebies for filling out a credit card application; peer groups like frats and sororities hawking cards as a fundraiser; and a keen eye on the university “special” card.
Consumer Union’s Credit Care package give some helpful tips and resources for students to arm themselves in the coming months.