Students, CUs Face CARD Act Hurdles
The reality of the impact that the enactment of the CARD Act has had on credit unions that offer credit cards to university students has been a mixed bag.
Under the law, a card issuer cannot issue a card to a person under 21 years of age unless that student has a parent co-signer or can prove he or she can pay for the card. It also requires the disclosure of contracts between universities and credit card companies and prevents companies from luring students with freebies and giveaways in exchange for card applications.
Even before the CARD Act, FSU Credit Union never used student credit cards as a lead-in with marketing and sales efforts.
"Our primary focus was and remains on financial education," said Harmony Nagy, marketing director at the Tallahassee, Fla.-based credit union. "Our credit cards prior to the CARD Act allowed students with no established credit to get a $500 credit card, which would increase by $500 every year that they remained in school and used the card responsibly."
She said it was created to teach college students about the importance of establishing credit responsibly and reaping the rewards of good financial habits.
"We have terminated that card program due to the strict requirements of the CARD Act but continue to combine all products we offer with financial education," said Nagy. "We no longer offer a credit card specific to college students, though students can still obtain a standard credit card as long as they meet the standards set forth by the CARD Act along with our internal underwriting guidelines."
She added that since the change the greatest challenge has been getting in front of the parents.
"Parents are in town rarely and difficult to reach. Additionally, parents are often not properly informed about the positive impact good credit card management can have on a credit score and so sometimes shy away from helping their children establish credit," said Nagy.
Overcoming student and parent misperceptions of the CARD Act has also been an issue at Michigan State University FCU.
"What we’ve experienced, which has been the bigger challenge for us, is students either don’t think they can even get a credit card or don’t want to apply because of all the press coverage of the legislation," said MSU FCU Executive Vice President April Clobes. "We know we have a great low-rate credit card product and we want to make sure students still have that choice so for us we’re focusing our efforts on re-education."
It has resulted in a decline in the Lansing, Mich.-based credit union’s credit card accounts.
"We’re part of a Big 10 group of credit unions, and we talk about efforts and some have opted to stop promoting credit cards to students. But we didn’t feel that was a good idea since they will still get a credit card somewhere," said Clobes. "We know that our card is better in terms of fee structure, grace period and pricing so we made a choice not to shy away from the legislation at that level. In our local market PNC and Bank of America certainly haven’t stopped promoting to students, and we won’t either. We’re actually hoping that since their practice was more predatory their rate of decline is higher than ours."
Ironically, the legislation has helped New York University Federal Credit Union’s efforts. Always conservative in their credit card approach, the credit union has strict qualification requirements of its students and their parents.
"We always did income verification, their credit score couldn’t be below 620 and their debt-to-income ratio cannot be more than 45%," said NYU FCU CEO Mira Ness. "If they don’t qualify, we also offer a secured credit card."
Ness credits the popular on- campus financial basics seminars for the great word of mouth about NYU FCU’s credit card options. Last year, NYU made the seminars a freshman requirement, and now the credit union offers some 48 interactive seminars across NYU’s 15 schools where students are challenged to think about everything from credit reports and college budgeting to the realities of credit card use. Developed by Ness, the seminars are less lecture and more interactive discussions that revolve around real world issues.
"We are all over in NY and the response has been good," said Ness. "What’s been rewarding is that we’re giving back something invaluable that will help them build a solid financial money management foundation."
She said as far as the big bank competitors, they’re back to their old ways and have relocated their promotional gear tables from the campus to Washington Square Park.