In a marketing blitz to sign up students as customers, credit companies are giving new meaning to ... : Getting Carded
Connie Bedell calls her 22-year-old twins “double trouble” because Michelle and Diana share everything--good and bad. So it wasn’t without some apprehension that she sent them away to college four years ago with warnings about drinking, smoking and going to wild parties.
Fraternity boys coming to the door with credit card sign-up sheets didn’t factor into Bedell’s worries. But that proved to be the financial undoing of her daughters.
Four years and $8,000 in debt later, Connie and Michelle Bedell testified at recent congressional hearings about the dangers of the increasingly aggressive push to get students to take credit cards.
After roughly five years of blanketing college campuses with student credit card applications, issuers are under the gun. Legislators and parents are charging that their offers of easy credit are deceptive, abusive and leading to the financial ruin of thousands of young Americans.
Horror stories abound.
One Loyola Marymount student charged $25,000 on seven credit cards before he turned 19. He’s now working 30 hours a week to make the $560 in minimum monthly payments. A Texas Tech student who ran up $17,000 in debt by his junior year dropped out of college and filed for bankruptcy. A college-age couple from Charlotte, N.C., ran up $15,000 in debts before graduation, according to Rep. Joseph P. Kennedy II (D-Mass.), who held legislative hearings on the subject in March.
Despite the controversy, the push for the student market is actually heating up rather than cooling. Credit card companies say they love the student market for two reasons: Students pay their bills as responsibly as adults, and, equally important, they tend to remain loyal to their first credit card company. The issuer who wins their business first may be gaining customers for life.
The end result: Credit offers are being sent to younger and younger students. Indeed, high-schoolers--many too young to sign a binding contract--are getting blitzed with offers. And while issuers are aiming the pitch at people who have no previous credit experience, they acknowledge that they’re not taking steps to send educational materials with solicitations. Credit card companies publish helpful credit education materials, but they don’t automatically provide these booklets to young customers.
“All they say is: ‘It’s so easy to use. Just sign your name,’ ” says Elissa Burrall, an 18-year-old UCLA freshman who has received at least three pre-approved card applications during the past year. Burrall, a recent La Canada High School graduate, says she started getting credit solicitations soon after she completed college placement exams during her sophomore year of high school.
“There’s no question that the heat has been turned up on the student market,” says Robert McKinley, president of Ram Research, a Frederick, Md., publisher of credit card newsletters. McKinley’s high school-age son has also been contacted for pre-approved cards, he says.
It’s worth noting that while companies are reaching for increasingly unsophisticated consumers, the terms of credit card contracts are becoming more complex.
More issuers now “tier” rates, offering low rates for good risks and higher rates if your payments come late or you go over your limit. There are special--usually higher--rates for cash advances. And a plethora of fees are triggered when borrowers get in trouble. Required minimum payments have also fallen--a selling point. What the issuers don’t explain: A 20-year-old who makes only the minimum payment could be paying off a $5,000 debt until age 40.
Students aren’t stupid, but it takes a doctorate to keep track of all the caveats with these new cards, legislators maintain.
“This marketing blitz is having a devastating impact on the lives of many students and their families,” Kennedy said. “Without adequately knowing the risks of credit, students have gotten hooked on plastic and are racking up huge debts that will plague them for years.”
Many parents believe their kids should have credit cards while away at college. But those of indebted youths often maintain that the credit-cards-for-kids campaign is actually a sham. In fact, the companies are lending money to students knowing that their parents are likely to pick up the tab, Bedell says.
“Why do they market to people who have no income?” she fumes. “They say it is because the kids are good risks and they always pay the money back. I say, no, they don’t pay it back. Mom and Dad pay it back because we know what is going to happen with our kids over the next seven years, when they’re trying to get a job and a house and a car. Because we love our children so much, we don’t want their credit ruined. So we pay off their cards.”
Credit card issuers acknowledge that some kids have problems. But so do some adults. There’s no reason to withhold credit from a group that’s largely responsible because a handful can’t pay their bills, says Susan Weeks, a spokeswoman for Citibank in New York.
However, issuers admit that nearly all the credit-issuing standards that relate to adults are waived when it comes to students.
Normally, you need to have a steady job, a history of paying your bills or a co-signer--a good credit risk willing to pay your bills if you default--before you’re offered credit, industry experts note. But many students are told they qualify if they’re attending an accredited college and have a minimum number of units. They don’t need a job. They don’t need a trust fund. They don’t need a co-signer. They don’t need to show that they’re willing or able to pay their bills.
No other group is treated as favorably, says Ruth Susswein, executive director of Bankcard Holders of America.
Kennedy is pushing for improved credit education and additional disclosure when youths are offered cards. Bedell thinks parents should have to co-sign before their children, without jobs or assets, are allowed more than a few hundred dollars’ worth of credit.
However, legislation requiring such reform is a long way off and may, in fact, never happen. As a result, many experts urge parents to discuss finances with their children early. It’s almost certain that they’ll be offered credit cards at school, so the more they know, the better they’ll be prepared to handle credit card decisions.
It might even be wise to help your kids secure credit cards before they go to college, says Robin Leonard, author of “Money Troubles: Legal Strategies to Cope With Your Debts.”
“If they already have a card--particularly a lower-rate card--they won’t be so easily seduced by the marketing on campus,” Leonard says.
SH Credit Card Tips
What should students--or anyone else--take note of when considering a credit card?
* Risk-tiered rates: Issuers may offer fairly low interest rates--16% or less--to good risks but have higher rates for people with poor or nonexistent credit histories. A student might start high and be told that he or she can graduate to a lower-rate card after establishing a credit history and never missing a payment.
* Use-tiered rates: Typical credit card terms allow for one rate on purchases and another on cash advances. Advances often have a higher rate and no grace period.
* Late payments: Generally $10 to $15, plus the possibility of higher interest rates.
* Minimum payments: Paying off a balance by paying the minimum each month could take decades. In some cases, it could take 20 years to pay off a $5,000 debt.
