No Free Lunch For Credit Card Companies

June 26, 2008 — -- Even in college, there's no such thing as a free lunch, as University of Illinois at Chicago student Sydney Maier found out when she learned the free sandwich coupon she received on campus couldn't be used unless she filled out a credit card application.

"I think it's absolutely manipulative," Maier said. "I think it makes the student passive in obtaining a credit card when they could be actively perusing it."

The creative marketing ploy is a way for credit card companies to circumvent college policies that no longer allow them to solicit on campus. Dozens of schools, including the University of Illinois at Chicago, Georgetown University and Ohio State University have banned credit card companies from their grounds.

The new regulations could be a blow to companies that often view universities as fertile ground for cultivating new customers — they can hook students early and instill brand loyalty.

"I have a very strong opinion when universities go out of their way to establish regulations and policies to prevent marketing on campuses, and then credit card companies find specific ways to go around that and still target students," said University of Illinois at Chicago student Brett Thurman.

But now universities and lawmakers are fighting a back against companies that aggressively market to college students.

No Free Lunch for Companies

The state of Ohio has sued a credit card company over a marketing ploy aimed at Ohio State students in which the students were given fliers that said they'd receive a free burrito when they showed their student IDs at a local restaurant. When the students arrived, they had to fill out credit card applications to get their free lunch, similar to Maier's experience in Chicago.

Ohio State Attorney General Marc Dann sued the company for violating the state's consumer protection law by allegedly using deceptive marketing. The state also went after the participating restaurant.

The case against the credit card company has yet to be resolved and is still in state court. The restaurant has settled its claim.

On the national front, Washington lawmakers today will discuss whether legislation is needed to rein in credit card companies when Rep. Carolyn Maloney, D-N.Y., holds a hearing on problem credit card practices affecting students. Maloney, who chairs the House Financial Institutions and Consumer Credit Subcommittee, has proposed a credit cardholders' bill of rights.

Proponents hope if the bill passes it might help curb student debt. Thurman, who is the University of Illinois at Chicago student body president, will testify today at the hearing.

A bill before Congress would try to address the issue by capping credit card limits at $500, or 20 percent of the student's income, while another would require people younger than 18 to prove they have an independent way of repaying the card or that they have taken a credit counseling course.

Troubling Trend

Student loan giant Nellie Mae found in a survey that 76 percent of undergraduates have a credit card. The study also found that 43 percent have four or more credit cards. Those large amounts of plastic come with equally large price tags in the form of balances with the average balance more than $2,000.

The 2005 survey also found that only 21 percent of students pay their bills in full each month, which means many are starting their postgraduation lives carrying debt.

For some students, the juggling of credit card charges can become too much, and in a few isolated cases it has led to tragic results.

The documentary "Maxed Out" profiled two mothers whose college-age students committed suicide after they became saddled with credit card debt.

"He said he didn't know how he got into credit card debt," said one distraught mother in the film. "A week later, he hung himself."

Industry's Responses

The credit card industry said it's up to individuals to be responsible with their credit and added that it's reasonable to issue low-limit cards to college students who will graduate soon and begin earning an income.

"At 18, people are allowed to enter into contracts. They are allowed to get married. They are allowed to vote. They're allowed to sign up for the Army. They should be able to get a credit card and not have the government intervene," said Nessa Feddis at the American Bankers Association.