The Dangers of Plastic: Credit Cards
Author Thomas Tusser said, “He who goeth a borrowing, goeth a sorrowing.” Despite author Tusser’s archaic 16th century lingo, he makes a very good point. Those who borrow often face difficulties in terms of paying off their debt, especially when the borrower happens to be in college.
Nowadays, credit card companies employ ingenious ways to market to college students—students with a new sense of independence and financial freedom who can easily rack up a credit card bill without even leaving campus. Those with debt are stigmatized as being compulsive shoppers or overly materialistic, yet the majority of college students use credit cards out of necessity due to increases in the cost of living. Students are forced to spend more than ever on tuition, housing and even food. With the current job market in shambles, many of those in debt find themselves unable to pay their bills after graduation.
Although much of the actual data is hard, if not impossible, to come by due to the secrecy and propriety laws of banks and card companies, one study conducted by Nellie Mae in 2004 indicated that the average outstanding balance on undergraduate credit cards was $2,169, with senior students carrying an average of $2,864. Not surprisingly, as students continue along their scholarly path, credit card ownership also increases, with 91 percent of seniors having a credit card compared with 42 percent of freshmen.
The increase in student cardholders is in large part due to the aggressive means that companies employ to attract financially inexperienced young adults. Mailings are not the only way students are being targeted. College campuses are now unashamedly playing host to banks and third parties who offer rewards such as t-shirts, Starbucks gift cards and even iPods if students complete a credit card application. During vendor fairs here at UC Irvine, it’s not unusual to walk down Ring Mall and see booths for various banks filled with sales-people trying to lure students with offers of free gifts.
Some institutions and their alumni associations receive money from companies in exchange for access to students’ contact information, a problem precipitated by cuts in funding. Despite funding needs, selling out students for profit is still a blatant betrayal of trust. Some schools even receive cuts of what the students spend, making the incentive to open up a campus to credit card predators irresistible.
Card issuers don’t stop there—they are stooping so low as to bribe students to solicit their peers. One Greek fraternity member who has asked to remain anonymous describes how his chapter was approached by a third party representative who offered them $1,500 if they could get 100 or more of their friends to sign up for credit cards.
Financially illiterate, first-time card-holders are the most profitable. They are inexperienced and many are in need of financial assistance to pay for everything from tuition to food to personal expenses. Unfortunately, companies don’t see their practices as irresponsible. To them, once students hit 18, they have the right to a credit card and have the same access to information as the average cardholder. In other words, they’re free game.
However, in terms of financial awareness, college students are more naive about the trappings of “fine-print” than their older counterparts. Terminology can be confusing and promises of “no annual fees,” and “0 percent APR” sound appealing. They enter contracts without fully considering the consequences and though they are legally adults, most of them are independently managing their money for the first time, causing them to make costly mistakes.
Although the responsibility can’t be left solely to corporations that exist to make a profit, they can do their part by cutting down on exploitative and aggressive marketing practices. The State and Federal government also need to step in and create stricter laws on advertisements targeting young people.
Some in government are acting. Sen. Bob Menendez (D-New Jersey) has called for fairer practices with the Credit Card Reform Act, S 2753, which includes bans on universal default and, among other restrictions, limits on retroactive interest charges and caps on penalty fees. Consumers under 21 will also have the right to choose whether or not they’d like to receive credit card solicitations.
The UC system recently revised its own guidelines. However, the guidelines are lenient and don’t affect companies who already have contracts with the UCs.
With only half a dozen states enacting regulations on credit card marketing to students, the problem is far from being addressed. States need to work with the federal government to enact laws that will force the credit card industry to utilize fair practices in dealing with young customers.
After all, they are the future of this country, and starting out mired in debt is no way for them to succeed. There must be a joint effort on the part of lawmakers, banks and schools to educate students properly on their financial choices. Most importantly, students themselves must be aware that they are easy targets and in turn, protect themselves against the pitfalls of financial independence.
Lila Kooklan is a fourth-year political science major. She can be reached at email@example.com.