New law curbs credit card marketing to college students

The business of offering credit cards to students just got a little harder with the signing of a new law that slaps a number of restrictions on credit card solicitors.

Gov. Arnold Schwarzenegger signed AB 262, the College Student Credit Protection Act, into law earlier this month. The new law aims to shield college students from unnecessary debt by limiting what credit card companies and marketers can do on campus.

Authored by state Assemblyman Joe Soto, D-San Jose, the bill would require campuses to disclose exclusive credit card marketing arrangements with banks and financial institutions that do business on those campuses. The exception would be the release of proprietary information, which would remain confidential.

In addition, credit card companies that solicit on campuses would be prohibited from offering gifts to students for filling out a credit card application.

“We’re pleased the governor stood up for students,” said Chris Vaeth, director of special projects for the Greenlining Institute, a student-led organization that sponsored the bill.

AB 262, which goes into effect in January, passed the legislature last spring with no organized opposition. Banks and other financial institutions worked with students and the legislature to come up with a bill agreeable to all sides.

“It still allows the banks to do business and make a profit,” Vaeth said. “And it still allows students access to credit cards. But it fixes some of the more extreme predatory practices.”

He said that credit card companies in the past have offered things like free T-shirts and Frisbees to get students to sign up.

“It was not a serious environment to make that kind of financial decision,” Vaeth said.

According to student lender Nellie Mae, more than 75 percent of college students had at least one credit card in 2004, and more than 40 percent had at least four credit cards.

A primary impetus behind the bill was the fact that student credit card debt increases significantly during the course of the college years, with seniors owing nearly double the credit balance of freshmen.

Since debt from some students’ credit card bills rivals that of their student loans, student groups and others have been looking for ways to rein in some of that debt, or at least provide some guidelines to keep students from blindly taking on more debt.

Vaeth was particularly happy with the requirement for disclosure of the banks’ credit card marketing arrangements, but predicted a fight over the exception to this disclosure — “proprietary information.” In other words, what does “proprietary” mean, and what information should remain private?

“We don’t think there’s much that’s proprietary,” Vaeth said.

“I think AB 262 is a step in the right direction,” finance and business law professor Elizabeth Shields said in an e-mail interview with The Collegian. “But it’s only a small step in that it would prohibit vendors from offering gifts but doesn’t set any criteria for regulating the credit card marketing in general on campus.

“CSU, Bakersfield is the only CSU campus I know of that has a publicly available policy about this issue,” Shields said. “The UC system has a system-wide policy.”

But Shields was skeptical about the reach of the bill’s marketing restrictions.

Credit card companies would find ways of getting around “any ban or restrictions on direct on-campus marketing,” Shields said.

“Vendors can entice students off campus. Credit cards can be offered by alumni, athletic foundations and other bodies not governed by the campus administration, but who still have access to student information for contracts, although this bill may require disclosure of tie-ins to vendors,” she said.

Vaeth said he has nothing against the sharing of open, non-deceptive information, or the use of credit cards among students.

“We’re not opposed to students having credit cards,” Vaeth said. “We’re just concerned about the predatory practices that companies use that ultimately ensnare students with lots of debt.”

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