Attorney General Cuomo Announces Investigation Of Deceptive Marketing By Credit Card Companies That Target Students Through Their Colleges

NEW YORK, NY (September 2, 2010) - Attorney General Andrew M. Cuomo today announced a statewide investigation into deceptive credit card marketing practices that target college students through their colleges. Cuomo has sent letters to every college and university in New York requesting that the schools submit any exclusive contracts they currently have with credit and debit card companies so that his office can examine them for problematic marketing practices. The letters also call on the schools to adopt policies that will help students avoid getting saddled with credit card debt before their graduation.

The Attorney General’s investigation into the deceptive marketing of credit cards builds on Cuomo’s prior industry-wide examination of conflicts of interest in the student lending industry, which led to major nationwide reforms. Like student loans, credit cards are a major cause of students’ increasing debt burdens. Banks and credit card companies target students in part because they are less financially savvy and more likely to incur fees and penalties that result in substantial profits for credit card companies.

“Today’s students are facing a growing mountain of debt that can burden them long after graduation,” said Attorney General Cuomo. “As a new school year begins, we want to make sure that colleges and universities are doing all that they can to help students avoid financial dangers. Especially in this difficult economy, schools must ensure that credit card companies are not engaging in deceptive marketing practices and jeopardizing the futures of their students.”

The Attorney General’s investigation concerns deceptive credit card marketing practices that have targeted students, such as:

• Schools have given marketers their students’ personal contact information - without students’ permission - to allow companies to solicit students by mail, telephone, and online.
• Credit card companies have bombarded students with solicitations at student centers, athletic events, orientations, classroom buildings, and other campus locations.
• Credit card companies pay schools for the exclusive right to market cards to their students and to brand cards with their insignia. Schools have entered into these deals without evaluating if the terms of the cards are in their students’ best interests and without a competitive bidding process.
• Some schools have had a provision in their contracts with credit card companies that provide the schools with a percentage of the finance charges assessed to certain credit card accounts.
• Companies have lured students by providing free gifts and food when they applied for a credit card.

As part of the investigation, Attorney General Cuomo has sent letters to the approximately 300 colleges and universities in New York calling on the schools to:

• Submit any exclusive contracts they currently have with credit and debit card companies for an evaluation by his office. The Attorney General’s office will review the contracts for any problematic practices that put students at risk.
• Ensure that their practices comply with the provisions of a 2009 federal law, the Credit Card Accountability, Responsibility, and Disclosure Act (the “Credit CARD Act”), which provides new protections to college students from deceptive credit card marketing practices and unfair credit card terms, and other recent changes in federal law concerning debit cards.
• Educate their students about the serious consequences of credit card debt by offering financial literacy programs. Many college students do not understand the negative effects that late payments will have on their credit history or the far-reaching problems that a poor credit history can cause.

The average college student graduates with nearly $4,100 in credit card debt, on top of an average of $20,000 in loans for students at four-year colleges. This combined debt burden can be overwhelming for new graduates, particularly as they face the uncertainties of today’s difficult economic climate. Credit card debt has been found to slow students’ progress toward obtaining a college degree, as some students become forced to drop out of college and obtain full-time employment to meet their debt obligations. High-interest credit card debt limits graduates’ career choices and threatens students’ employment prospects, since many employers check applicants’ credit scores during the hiring process.

Dr. Robert D. Manning, author of Credit Card Nation, said, “As more American families debate the cost and sacrifices of a college education, few are aware of the additional expense of costly credit cards. Many new students drop out of college during the first academic year due to credit card debt that is frequently masked by low grades. Others must assume even more debt as they enter an increasingly difficult job market. For many young college students, their financial naïveté during their freshman year could push the American Dream beyond their grasp. Once again, as a follow-up to the student loan conflict of interest investigation, Attorney General Cuomo leads the nation in reminding college administrators that students, their families, and taxpayers are their mandated priority.”

The Attorney General’s investigation is ongoing.

STUDENT LOANS INVESTIGATION INFORMATION

Today’s action builds on Attorney General Cuomo’s nationwide investigation into the student loan industry. Cuomo’s investigation, which began in 2007, resulted in massive reforms that prohibited the largest student lenders in the country, as well as a number of schools, from engaging in conflicted and deceptive lending practices. The investigation resulted in settlements with the largest student lenders in the country and 28 schools, many of which contributed to a multi-million dollar fund to educate students and families nationwide on the student loans process. The investigation also resulted in the return of over $3.5 million dollars to students and their families. Furthermore, Cuomo’s Code of Conduct for the student loan industry was codified into New York State law as the Student Lending Accountability, Transparency, and Enforcement (SLATE) Act of 2007 and became national law as the federal Higher Education Opportunity Act of 2008.

This investigation is being led by Special Deputy Attorney General for Consumer Frauds & Protection Joy Feigenbaum and is being handled by Special Counsel Carolyn Fast and Assistant Attorney General Brian Montgomery, under the direction of Executive Deputy Attorney General for Economic Justice Maria Vullo and Deputy Attorney General for Economic Justice Michael Berlin.