Before the Credit CARD Act of 2009, credit card issuers could be found everywhere on college campuses, from freshman orientations to their own booths on the quad. Students were prime targets for card issuers: they were less discerning, more impulsive and more likely to choose a brand they knew well. Card companies would give away Frisbees, T-shirts and other tchotchkes, and would allow students to sign up for cards using their parents’ incomes instead of their own.
When students were given credit cards, though, they had credit limits that matched their parents’ credit score and income, though no one but the students were liable for the debts. Students were given access to premium credit cards as though they had decades of history and income under their belts.
To address the danger of giving someone, particularly a student, a credit limit that allows him to dig himself into debt, the CARD Act required that card companies consider individual income rather than household income. A student could no longer report her parents’ income as her own unless they co-signed the loan. After the CARD Act, credit cardholders must either have their own income or a co-signer.
The financial overhaul also put restrictions on card issuers’ marketing practices. On-campus advertising was banned, as was giving gifts with applications for student credit cards. More, colleges would have to disclose any exclusive relationships with card companies, such as an alumni credit card partnership.
To an extent, the law worked as intended: aggressive marketing for credit cards disappeared from college campuses, and issuers were banned from giving away gifts in exchange for applying. However, some issuers simply shifted tactics, encouraging college students to sign up for checking accounts and continuing to develop a relationship from there. Others would set up shop on main off-campus student thoroughfares, avoiding a regulation prohibiting them from marketing within 1,000 feet of the college’s grounds.
College affinity credit cards, or alumni credit cards, also saw a significant dropoff. The number of new accounts opened fell by 17% between 2009 and 2010, according to a Federal Reserve study. At the same time, the number of college-issuer partnerships fell by 41 as partnerships soured. Last year colleges received 13% less from issuers than they did in 2009. Clearly, a relationship between a college and a card issuer became less profitable following the CARD Act.
The CARD Act promoted responsibility on the part of both lenders and students. The former’s aggressive marketing tactics were tamped down, while the latter had to ensure that they could handle the credit they were given. These effects are nebulous, however; lost revenue from issuers is a very real statistic that colleges will have to react to.
Tim Chen is the CEO of NerdWallet, a credit card website dedicated to helping students find the best credit cards for their lifestyles and budgets.