New York Attorney General Andrew Cuomo is seeking information about contracts that colleges and universities in the state have with card issuers as part of an investigation into deceptive marketing tactics.
Cuomo's office announced Thursday that it had sent letters to about 300 schools asking them to provide any exclusive contracts they have with debit and credit card issuers; his office plans to review the deals for "any problematic practices that put students at risk," according to a press release.
The letter implored the schools to make sure their practices comply with the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which put new restrictions on issuers' ability to market to people under 21.
"With credit markets tightening in these uncertain financial times, there is even more reason today than ever before for university and college administrators to be vigilant about the safety and fairness of financial products and solicitations directed at their students, especially when such marketing is done with the imprimatur of the school," Cuomo said in the letter.
The letter was not sent to card issuers, a spokesman for the attorney general's office said.
The investigation stems from a nationwide investigation into the student loan industry the office started in 2007.
Cuomo's letter said schools have agreed with issuers to market affinity cards to alumni associations and students "with little or no evaluation of the terms or rates of the cards that could be marketed to students." Some schools also have disclosed students' personal contact details without their consent, and some issuers have offered introductory interest rates without disclosing that the rates will rise after a teaser period ends.
Such agreements involve revenue-sharing components in which the issuer and the college often each get a portion of interchange revenue and annual fees people may pay on the cards, said Ben Woolsey, the director of marketing and consumer research at CreditCards.com. They also typically involve the issuer's paying a large up-front fee to the college that can be in the millions of dollars, he said.
"They're fairly lucrative for both the bank and the college," Woolsey said.
The CARD Act requires schools to publicly disclose such agreements and submit annual reports to the Federal Reserve outlining the terms of such arrangements.
Many market watchers anticipated that marketing of these so-called student credit cards "would completely disappear" as a result of other CARD Act provisions that require people younger than 21 to have a cosigner older than 21 or to demonstrate the ability to repay credit, as well as prohibitions against issuers' giving students gifts for submitting a card application on or near a campus (though it does not prohibit marketing cards on campuses in general), said Andrew Davidson, a senior vice president at the Chicago marketing research firm Mintel Comperemedia.
This has not turned out to be true. "We're actually starting to see student offers once again," Davidson said, though he noted that direct mail offers for student-specific cards make up less than 1% of overall mailed card offers.
