The Credit CARD Act banned some of the most popular credit card marketing practices on campus, including prize giveaways and party sponsorships. Students under 21 can't get credit cards on their own, without the support of a co-signer, making impulse applications much less practical. Yet, some marketers have figured out loopholes in the system, enabling students to get their hands on credit cards that might not always be the right fit for their financial futures.
Some credit card companies collect student data
The Credit CARD Act made no changes to the rules for marketing directly to consumers aged 18-20, who are more likely to have a parent available to co-sign their applications. That makes databases of student mailing lists highly valuable to prospective lenders, since regulations grandfathered existing deals between banks and college officials.
A recent report by WTVF-TV in Nashville examined the contract between Chase and the University of Tennessee. That deal requires university officials to release the names and contact information for students and alumni upon request, in return for a share of credit card revenues.
Capital One offers credit card "training wheels"
One new entry into the student credit card market turns a Visa card into a teaching tool. The new Journey Visa from Capital One enables college students without deep credit histories to qualify for a "training wheels" credit limit. Unlike other starter cards, the Journey Visa has no annual fee and even features a 1 percent cash-back rebate on all purchases.
In their book "Switch," authors Chip and Dan Heath write about the ability to encourage good behavior by offering the right rewards in a supportive environment. Student credit cards earned criticism in the past for encouraging new borrowers to rack up high debts while making small payments.
The new Capital One card goes against this. The Journey Visa rewards borrowers who can learn to cycle regular purchases through their smaller credit lines. Better still, if you make every payment on time, you'll earn a 25 percent premium on your cash-back rebate.
Time will tell
It's too early to tell whether this new approach to student lending will catch on, especially with young consumers more concerned about the size of their credit limits. Capital One may risk some short-term profits for the chance to cultivate long-term customers with responsible borrowing habits and an eye for value.