Colleges Lose Revenue in Wake of Credit Card Act

Credit CARD Act 2010New legislation has prohibited college students under the age of 21 from signing up for credit cards without an adult co-signer or the financial means to repay the debt. Although regulations stemming under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act have reduced the risk of young adults finding themselves in credit card debt, colleges and universities are beginning to feel the backlash.

Prior to the Credit CARD Act, schools and their alumni associations were raking in millions of dollars from students who signed up for credit, according to the Denver Post . A number of schools had signed contracts with issuers as a way to generate revenue for the school. Critics believed that by inking these deals, colleges were making young adults more vulnerable to debt. Others, however say they were merely giving young adults the opportunity to build payment histories and build their credit scores.

"Providing young individuals with an introduction to basic banking services, like checking accounts and savings accounts, helps further financial literacy and bestow individuals with the basic tools to develop responsible financial habits," Colorado Bankers Association spokesman Tim Powers told the Post.

Banks believed they were providing two things: extra revenue for schools and spending money for students. These contracts have also been known to provide the credit card issuers with an abundance of information, including the phone numbers and e-mail addresses of students, faculty, and alumni for marketing purposes.

The mailing list for one alumni group, the University of Colorado Boulder Foundation, includes 220,000 names, according to its contract with FIA Card Services, which is owned by Bank of America. Although not all schools release the personal information of their students, many still allow issuers to market to them on campus, according to the Post.

The Credit CARD Act now prevents issuers from handing out freebies, such as T-shirts and pizza, to entice students into applying. However, analysts say young adults are still buying into the advertising because credit is easily accessible.

"Applying for a credit card is serious stuff, and it shouldn't be just to get a T-shirt," Gale Hillebrand, chief counsel at Consumers Union, told the Post.

In August, New York Attorney General Andrew Cuomo was one of the first to request that colleges across his state reveal all exclusive contracts they have with credit card companies in an effort to crack down on credit card marketing. The State University of New York has complied with the Attorney General's request thus far, according to Reuters. Although many of the 300 colleges and universities in New York had no prior agreements with issuers to begin with, Cuomo hopes those that did will comply in the near future.

In 2005, 76 percent of undergrads had at least one credit card, according to the Post. Nearly 56 percent signed up for their first card in their freshman year of college and carry a balance of more than $2,000. The release distributed by Cuomo's office in an effort to expose exclusive deals noted that students often graduated with an average of $4,100 in credit card debt on top of their student loan debt.

The average American had approximately $24,000 in student loan debt in August, according to the San Francisco Chronicle. Borrowers who can't make payments on their education loans will damage their credit scores. Although consumers are continuing to reduce their credit card debt, the average credit score across the country has dropped two points since the beginning of 2010, the San Francisco Business Times reports.


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