Students: Beware siren songs of credit card companies

We can give college students credit for their educational achievements, but at least one group of activists says the companies that issue the majority of credit cards are giving them too much credit.

Students at colleges and universities across the country have been the targets of credit card giants for years. Ask why and a frank answer from a lender might go along the lines of an old joke. “Willie” Sutton, caught after years of stickups, was asked why he robbed banks. “Because,” he reportedly answered straight-faced, “that’s where the money is.”

The money, in today’s case, is money that’s new to the credit card industry. We’re all too familiar with the solicitations by phone and mail to take out another credit card or switch accounts from one card to another. Such solicitations, often containing a zero percentage rate incentive, are expensive for the credit card industry. A much more lucrative and easily targeted source of new borrowers is on college campuses.

Students, or in many cases, their parents, are the source of a lot of disposable income, and the credit card issuers use all sorts of incentives to get young people to part with those funds. A survey just released by the Public Interest Research Group shows that students generally support limits on the solicitations.

The in-person survey included 1,500 students at 40 large and small campuses nationwide between October 2007 and February 2008, including the University of Maine and University of Southern Maine. Of all the students surveyed, nearly two out of three had at least one credit card. The survey shows students are using their cards in significant numbers; 55 percent of those surveyed used their cards for “day-to-day expenses,” and the same number said they bought books on credit. The next highest categories were “weekends and pizza.”

Many of these students are paying extra for using plastic. One in four reported having paid at least one late fee, and 15 percent had paid at least one over-the-limit fee. Four in five students said they received mail from card companies, on average just under five solicitations per month. And 22 percent of the students surveyed said they received between three and four phone calls a month promoting credit cards.

Industry representatives frequently set up tables on or near campuses where they can talk with large numbers of students. They frequently offer gifts, usually food, “free” if the student completes an application for a credit card. PIRG suggests that such promotions may serve to convince students that credit card use will solve their financial problems, while in many cases they only add to their woes.

The efforts of credit card promoters are working. A graduate student surveyed University of Maine students in 2002 and found that seniors with credit cards had an average balance of $2,338, while freshmen totaled $867. The new PIRG survey shows increases to $2,623 for seniors and $1,301 for freshmen.

The majority of surveyed students thought reforms of industry practices were in order. Four out of five supported stricter on-campus marketing principles, while one in five thought students could deal with credit card marketing without regulation. Those supporting stronger principles also were largely in favor of the marketing of only those cards with fair terms and conditions. They also opposed the sharing or sale of student lists with credit card companies.

Consumer Forum is a collaboration, now in its 30th year, of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded nonprofit consumer organization. Individual and business memberships are available at modest rates. Interested and motivated prospective volunteers are always needed and welcome to apply to help with our mission. For assistance with consumer-related issues, including consumer fraud and identity theft, or for more information, write: Consumer Forum, Bangor Daily News, P.O. Box 1329, Bangor 04402-1329.