There was a time, not long ago, when college students were bombarded with offers of credit. Students walking to class might be offered free T-shirts, coupons for free meals, school logo items such as stickers, magnets, balls and binders, or even entry into drawings for free spring break trips—all for filling out a quick application. What wasn’t explained to the students, however, was the form they filled out was an application for a credit card. Did it matter the applicant had no credit history and little to no source of income? Not then it didn’t.
Credit card applications would be inserted into dormitory mailboxes en masse, without regard to what student was receiving them and if that student was well-qualified for a loan. How many students—who had little knowledge of credit and financial responsibility—found themselves in dire straits after racking up a credit card balance they could not repay, when they had originally only signed up for a free lunch or a T-shirt?
Fortunately all that changed with the 2009 Credit Card Accountability Responsibility & Disclosure Act. The CARD act includes a clause that restricts practices such as gift-giving to encourage individuals to apply for an account. It also requires anyone under the age of 21 to either have a co-signer in order to be approved as a credit applicant.
The CARD act is apparently working, and not just as a deterrent for issuers. In a new report, the Consumer Financial Protection Bureau found the number of U.S. universities that agreed to allow credit card issuers to market cards to their students fell by 21 percent in 2011—to just 798. The total payments made by credit-card issuers to higher-education institutions, alumni groups and foundations also fell by 15 percent in 2011, to about $62 million. Likewise, the number of new accounts opened through such relationships fell by 7 percent to just 43,010 during the same period.
The CFPB found that the majority of college-affiliated credit card agreements are between issuers and organizations such as fraternities and sororities, alumni associations or foundations, and not the institutions themselves. Almost 80 percent of all agreements in 2011 were submitted by FIA Card Services, N.A., a subsidiary company of Bank of America, Corp. That breaks down to just less than $50 million paid by Bank of America to colleges and their affiliates in 2011 alone. It paid $2.7 million to Penn State Alumni Association and another $4.3 million to the Alumni Association of the University of Michigan. That’s just in 2011, after the significant drops in marketing efforts on campuses. Just imagine what it was like before Dodd-Frank.
