Amid widespread concern about rising consumer debt, lawmakers in three states are considering legislation that would restrict the marketing of credit cards on college campuses.
Bills introduced in Texas, Oklahoma, and California would seek to protect students from racking up debt they cannot afford.
Some consumer advocates are pushing for outright bans on marketing to students, but legislative proposals stop short of that. Among their provisions are: restricting or barring card issuers from offering gifts to entice students to apply for the cards, limiting where they can market on campus, prohibiting universities from selling student information to issuers, and requiring schools to disclose exclusive arrangements with card companies.
The credit card industry has taken a lot of heat recently for what some lawmakers perceive as deceptive business practices. At a hearing this month members of Congress grilled card company executives about finance charges, grace periods, and disclosure notices, and they vowed to introduce legislation to curb what they have called "abusive" practices.
Meanwhile, the documentary film "Maxed Out," now showing around the country, is drawing national attention to the dangers of students' taking on too much debt. One particularly emotional scene features two women who attribute their children's suicides to credit card debt they amassed in college. The movie's Web site has a link to a petition calling for a ban on credit card companies' marketing on campuses.
The bills in the three states target both card companies and universities. (A bill in Maine that would have required adults under 21 to obtain parental permission before obtaining a credit card failed in committee this year.)
The California bill would require universities to disclose exclusive deals with credit card companies and bar the companies from offering gifts for filling out applications. The measure is scheduled for a committee hearing April 17.
In Texas, a bill introduced by Rep. Dan Branch, R-Dallas, would require credit card companies that entice card applications using gifts - such as T-shirts, baseball caps, even free pizza - to provide credit counseling as well.
It would also require universities that allow card marketing on campus to offer financial education as part of freshman orientation and would mandate that the universities - not the card issuers - determine where the marketing would take place.
In an interview, Rep. Branch - a lawyer who has represented banks - said his aim is not to ban card companies from campuses but rather "to find the right balance and limit the unnecessary or ill-advised indebtedness of college students."
For instance, he said, incentives like free food or merchandise can be too strong for students on tight budgets to refuse.
Card issuers argue, though, that they are already protecting students from getting in over their heads by keeping spending limits low, e-mailing alerts when payments are due, and providing financial education materials to cardholders explaining the importance of managing credit.
Major credit card issuers such as Citigroup Inc., Wells Fargo & Co., and Bank of America Corp. all point out that they provide financial education materials designed to help college students understand their finances, including credit cards, and how interest works.
In a statement e-mailed to American Banker, Wells Fargo said it "knows that students are new to credit, and, as a result, we are committed to helping them understand the importance of building and managing credit wisely by educating them on responsible credit behavior."
The Texas bill has gained three new authors, including two from the House Committee on Business and Industry, which heard it last week and approved it. A similar bill has been introduced in the Texas Senate.
Rep. Burt Solomons, R-Carrollton, chairman of the House Financial Institutions Committee and a member of the business and industry panel, said the bill stands a good chance of passing because, unlike those introduced in past years, it does not aim to prohibit credit card companies from doing business.
"The approach before was to mandate something that was unworkable," he said, in a telephone interview. Rep. Branch "has brought an approach that has some merit."
Rep. Branch made clear that the bill would only affect campus marketing, not direct mail solicitations.
The Oklahoma bill, in its first draft, would have banned card issuers from setting up shop on college campuses, but it has been rewritten to drop the ban after spurring objections from the state's major university.
The author, Sen. Jim Reynolds, R-Oklahoma City, pulled the bill out of committee and resubmitted it with a prohibition only on universities' selling student information to consumer credit companies for marketing purposes. It has passed the state Senate and is in committee in the House.
Young people, he said, "are getting bombarded with credit card applications when they apply for college." He said he is concerned that heavy debt may have contributed to students' suicides. When his son started school several years ago, Mr. Reynolds said, he "was getting more offers than I do after 20 years of credit history."
Universities opposed the original draft bill in part because deals with card companies can be lucrative.
The University of Oklahoma's Board of Regents, for example, recently OKed a deal in which Bank of America is to pay the school at least $1 million a year for 10 years to gain exclusive marketing rights.
Students, parents, and consumer groups have criticized the arrangement, arguing that the university is making it too easy for students to get themselves into debt. But the university defends its arrangement with Bank of America, pointing out that the rights payments help fund capital improvements and that, because the rights are exclusive, students cannot be solicited by multiple credit card vendors.
Catherine Bishop, the university's vice president of public affairs, also noted that the school offers a financial literacy course for both parents and students, for-credit classes that teach life skills like financial literacy, and seminars that cover the wise use of credit.
"From the day they attend New Sooner Orientation as a freshman, we seek to teach students to act responsibly, in all aspects of their life, including financially," she wrote.
