Sign-Ups for College-Affiliated Credit Cards Drop After CARD Act
Alumni aren't feeling the love for their former colleges and universitiesat least when it comes to credit cards. According to a recent report from the Federal Reserve, the number of credit cards issued through colleges and alumni associations dropped 17% in 2010.
Marketing deals between these card companies and schools also declined 4% to 1,004 the report said.
The Federal Reserve report showed the number of credit cards issued through colleges and alumni groups fell to 340,409 in 2010, a far drop from the more than two million cards issued in 2009.
Colleges and alumni associations are loosing big bucks from this drop as well. According to Bankrate.com, college credit card affinity programs earned approximately $73 million in 2010, down 13% from $84 million in 2009.
Experts suspect this marked drop in card membership via colleges and alumni associations is likely due to the 2009 Credit Card Act. The law requires anyone under the age of 21 cannot obtain a credit card, unless they can prove they will be able to pay the bills or have a co-signer.
Beverly Blair Harzog, credit card expert for Credit.com, said prior to the law, credit card companies were really vague about what income requirements are needed to be eligible to obtain a card.
"I'm not surprised the [sign-up level] has dropped, they aren't getting the kind of revenue they were before," Blair Harzog said. "They used to be able to profit from the randomness of recruiting on-campus. Now you can't sign up on the street any more, you need to prove you have the income to pay your bills."
Blair Harzog noted that some card companies, like Citi, are not allowing students to have a cosigner for their credit cards and instead require users to qualify for a card on their own.
The CARD Act also banned credit card companies from offering gifts to people who sign up for their such cardsa previously popular recruiting mechanism on college campuses. Students are often low on cash, so a free gift (even if its just a towel or beach ball) is attractive in such situations.
"This was an important marketing tactic, and when it was taken away this source of revenue came down quite a bit," she said.
While college is a great time to learn about credit and how to spend and borrow money smartly, Blair Harzog said she would prefer to see such lessons come from parents or family, with knowledge and experience.
"It's better coming from a source who will take time and have the student's best interest at heart," she said. "You don't want them charging late-night pizza runs."