Photo Illustration by Cody Cousino / Photo editor
Almost every Ohio State student can relate to having stacks of mail filled with credit card applications and inboxes bombarded with MasterCard and Visa offers.
“I got a Discover Card in the mail this weekend,” said Aja Goare, a first-year in communication.
She said she thinks she receives about as many credit card offers as the average person, but has never applied for a Discover Card and was surprised when the company sent her a card.
The credit card industry spends millions of dollars per year marketing to young people, but efforts have been made in recent years to stop credit card companies from making contact with impressionable college students who don’t always use credit cards properly.
Those companies have been barred from college campuses, laws have made it more difficult for them to acquire students’ addresses and young people can no longer apply for a card without proving they have the assets to repay any debt they accrue. However, a recent study from the University of Houston found that credit card companies are finding ways around such restrictions.
In 2007, then-Ohio Attorney General Marc Dann, with the help of several colleges, including OSU, sued Citibank for offering OSU students free food in return for filling out credit card applications.
Two years later, Congress passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which further limited the ways credit card companies can market to young people by restricting the amount of information they could collect, like students’ addresses, barring them from campuses nationwide, and requiring young people to have a co-signer to obtain a card or prove they had the revenue to repay any debt accrued.
But a survey released in April recently found that students still frequently receive credit card offers in the mail.
A University of Houston study found that neither keeping credit card companies from coming onto college campuses nor restricting the amount of information they can collect kept them from contacting students.
Providers are following the laws, said Jim Hawkins, a University of Houston law professor and one of the authors of the study, but they are finding ways around them.
“They’re finding other ways to get students’ addresses,” Hawkins said. “They don’t need credit bureaus.”
However, a trade group for banks said credit card companies and banks offer extensive financial education.
The University of Houston’s study surveyed 500 students. A questionnaire was distributed to large lecture classes with a diversity of students that them about their credit card use and how credit card companies had marketed them, according to the study. The majority of the 300 students surveyed said credit card companies had contacted them with offers that included free gifts, and many admitted to using credit cards without fully understanding how.
Many students who participated in the study admitted to using student loan payments as collateral to apply for credit cards, which is perfectly legal, Hawkins said.
“That doesn’t mean they can repay (credit card debt),” he said. “But they’re still getting a credit card.”
The problem with the CARD Act, Hawkins said, is that it wasn’t as direct as it could have been.
“If they didn’t want companies sending students offers in the mail, they should have simply made that illegal,” he said.
Hawkins said staff at the Houston’s law school also examined agreements between credit card companies and students.
While they are marketing to young people, credit card providers do provide resources to students to ensure they know how to use their card without racking up huge debt, said Jeff Sigmund, a spokesman for the American Bankers Association, which represents banks that provide credit cards.
“Our industry has devoted substantial resources to financial education for young people, from comprehensive websites on responsible card use to lesson plans for students,” he said in email.
Representatives from credit card companies Visa, Mastercard and Discover, and credit card providers Citibank and US Bank, did not return requests for comment Wednesday.
By marketing to college students, card providers are trying to find long-term customers and to instill brand loyalty, said Lucia Dunn, an OSU economics professor.
When card providers acquire new customers, “in general, they hang on to those customers for a long time,” Dunn said. “The first card you get, you keep an average of 10 years. The second card, it’s more like two years.”
Young people, particularly college students, who tend to be less educated about financial issues, are an inviting target, Dunn said.
“Students are less likely to be well-informed about all financial management issues,” she said. “Including credit cards and how the interest accumulates, and what happens if you miss a payment.”
OSU has conducted its own research about students who use credit cards, Dunn said, and found that when students misuse them, they tend to work more to pay off their debt. Students with credit cards are more likely to miss classes. Credit card debt, combined with student loan debt, “makes debt amongst young people a real issue,” Dunn said.
Jillian Baer, a graduate assistant for OSU’s Student Wellness Center who works in financial education, said getting a credit card isn’t necessarily a bad idea for a college student, but they should be smart about its use.
“Budgeting credit card use is one of the most popular topics to cover,” said Baer, a graduate student in education policy and leadership.
Baer said having a credit card can help a student build a good credit rating, which can be advantageous later in life if a person needs to take out a loan or buy a house.
But one can only achieve a good credit rating if they properly use their credit card by paying their balance on time and not accumulating too much debt.
“(Students) don’t realize how credit cards affect their credit score,” said Nora Paul, a fourth-year in consumer and family financial services who works at Student Wellness Center advising students on financial issues.
Some don’t understand that they need to have enough money to pay off their bills every month, or they’re going to end up accumulating interest, Paul said.
“People don’t understand shopping for credit cards,” Paul said. “They see, ‘This one is giving me rewards,’ but they don’t see the 21 percent interest rate. That adds up over time.”
And most students don’t end up using their cards wisely, Paul said. He said there have been instances of students opening a bar tab with a credit card, only to later realize they’ve spent several hundred dollars.
Although most students don’t initially come to the Wellness Center seeking advice about credit cards, at least half of the students who Paul counsels end up talking about it, she said.
A key provision of the CARD Act required credit card companies to provide young people with educational literature. Banks and other providers are complying with that provision, Sigmund said.
The American Bankers Association, he said, has a “Get Smart About Credit” program, which instructs banking institutions on how to educate young people about credit cards.
The University of Houston study, however, found that students remained largely unaware of the intricacies of owning a credit card.
“The problem with the system is, (credit card providers) have an incentive not to educate,” said Elizabeth Cooke, an OSU clinical professor of law.
Cooke was involved in Dann’s 2007 lawsuit against Citibank.
“They might have great online education, but 99 percent of students aren’t clicking on it,” Cooke said.
Credit card companies make money when their customers take longer to pay their balance because of the interest that accumulates, and if customers miss payments, they can charge fees.
Banks and lenders don’t necessarily want responsible credit card users, Cooke said, which means the
burden needs to be on someone else to educate young people about matters.