Confessions of a Credit-Card Pusher
This story is the second in a series examining the increasing use of credit cards by college students.
It all started as a way to make some quick cash. In 2002, at the beginning of his freshman year at the University of Pittsburgh, Ryan Rhoades needed some extra spending money. So when his friend told him about an Internet ad offering Pitt students a way to make some cash in a couple of hours, he didn't hesitate. Rhoades rounded up some of his buddies and headed over to the designated classroom at the student union.
What he saw in that room offers a view of how creative credit-card companies have become in marketing their services to college students.
An enthusiastic man who identified himself as a representative of Citibank (C) welcomed them and said they had the opportunity to make some money by signing up their fellow students for credit cards. The bounty for each completed application would be $5 to $10, depending on the kind of card. In retrospect, Rhoades feels like he and his fellow students were being recruited to become credit-card pushers. "That's exactly what it was," he says.
Salesmen at the Gates
Rhoades took the job and signed up roughly 30 students for cards. He regrets any trouble he caused other students from his actions. Still, his actions may have been most damaging to himself. He ended up with $13,000 worth of debt that he is now struggling to repay. "I hadn't learned anything about credit cards in high school, and I didn't know anything about them at the time," says Rhoades. "I was duped."
Politicians and college administrators are growing increasingly concerned about the damage that credit-card debt is causing students, and they're trying to crack down on some of the card companies' practices. They're limiting marketing on some campuses and trying to restrict the size of credit lines extended to students. Earlier this year, the state legislatures in Texas, Oklahoma, and New York moved to clamp down on credit-card marketing to college students (see BusinessWeek.com, 9/4/07, "Majoring in Credit-Card Debt").
As the restrictions grow, however, so too do the creative tactics marketers use to circumvent these efforts. At Columbia University in New York City, the school banned credit-card solicitations on campus. But a spokesman says the prohibition may not be that effective because the card companies set up "right outside the gates" to the school grounds. At the University of Michigan and nine other schools, JPMorgan Chase (JPM) contracted with New York-based BicyTaxi to offer students free bike-taxi rides around town. Once inside the vehicles, students are greeted with a piped-in recording promoting Chase's student credit-card program, Chase+1.
As for the University of Pittsburgh, the school had barred marketers from dormitories by 2002. But Rhoades, unaware of the restriction, marched right through the dorms to sign up his fellow students. He says he did so on his own, without discussing it with Citibank's representative. A Pittsburgh spokesman declined to comment for this story.
A spokesperson for Citibank says the company has voluntarily pulled back from marketing on college campuses. She would not specify which year the company made the decision, but says it no longer allows employees or any company it contracts with to solicit students on school grounds. "Citi does not conduct direct sales marketing on college campuses," she wrote in an e-mail. Citibank also says that it has strict guidelines for third-party vendors and that it would never condone violations of school policies.
That doesn't mean that Citibank doesn't market to college kids. The company has a specially designated card for students. And it actively markets its services near college campuses. Edward Solomon is chief executive of Campus Dimensions, which contracts with banks to market credit cards to college students. He says his company plans to visit 1,000 schools this fall to promote cards for Citibank and U.S. Bank (USB). In both cases, his company will work to steer clear of school grounds but stay close enough to attract students. "It's mostly about positioning yourself in a high traffic area," he says.
Such moves have consumer advocates up in arms. They argue that the growing problems that college students are having with credit cards need to be addressed more aggressively. If banks such as Citibank are still marketing to youngsters despite the existing restrictions, then schools and politicians need to take tougher steps. "Students are constantly under attack," says Linda Sherry, director of national priorities for Consumer Action, a San Francisco consumer education and advocacy group. "Despite colleges' best intentions, the companies just set up shop across the street."
Back in 2002, when Rhoades entered Pitt's student center during his freshman year, the first thing he noticed was the abundance of giveaways handed out with the credit cards. Among other things, there were about 20 boxes of T-shirts with "college" emblazoned in capital letters on the front, and a Citibank logo printed quietly under the collar. "You know I recently saw someone wearing that shirt when I was in Vermont, and I thought, man, maybe that's another person who got a credit card because they wanted a free T-shirt," says Rhoades. "It made me mad."
Roughly 25 students were milling around the student center, discussing what their mysterious sales task would be, when the man who identified himself as a Citibank rep entered. "He told us that this was easy money to make and that all we had to do was get students to fill out applications for Citibank credit cards," recalls Rhoades.
After arming the students with a bundle of T-shirts and credit-card applications, the Citibank representative, according to Rhoades, told the group how to assuage any concerns a student might have. "He told us phrases to tell students if they were skeptical about filling out an application," says Rhoades. "He told us to say things like, 'Even if you apply, you can always cut up the card,' and 'It's easy to pay off your balance once you graduate and get a great job.'"
Credit counselors argue these lures—the promise of a job and the prospect of just using the card during emergencies—while highly enticing for students, often don't pan out the way that marketers promise. "If the credit card is in their wallet, many students will eventually use it," says Darryl Dahlheimer, program manager at LSS Financial Counseling Service located on the University of Minnesota campus. "I bet none of the students I gave cards to ever cut up the cards," Rhoades says. "That's what you tell yourself, but it's too tempting."
Campus Dimensions' Solomon believes students are much more informed and savvy than critics suggest. With every credit-card application, Solomon tries to educate students about the various elements of the card, explaining interest rates, balance transfers, and responsible credit usage. "We try to give students good information from a marketing standpoint, as well as realistic information," he says.
Rhoades had no time to teach his fellow students about the pros and cons of credit. In fact, he wouldn't have known what to say if they had asked. All he wanted to do was sign up students. Without prompting from the Citibank representative, he went into one of the dorms, started on the third floor, and solicited on every floor until he reached the 20th. He was pretty successful, signing up roughly 29 students in a single morning. "Most of the students just wanted the T-shirt, and so I told them to fill out the application anyway," remembers Rhoades. "I just told them to fill it out and never use the card again."
Rhoades remembers that even though the credit-card application terms and conditions were listed in fine print, none of the students even glanced at them. His observation echoes a common criticism that students aren't educated about what they are signing when getting a credit card. "Students are rarely given financial literacy training," notes Dahlheimer. "And access to cards in the absence of a warning is like giving car keys to someone who has never been taught to drive." Rhoades recalls that the whole process was so fast that students had little time to glance at the application. "We were in a hurry to get people to sign up and they just did it, as a favor or because they didn't care," he says.
At the end of the morning, exhausted from traipsing around campus, Rhoades surveyed his progress. He was just one application short of getting a cash bonus so he decided to fill one out himself. After marketing the cards all morning, he had begun to buy his own sales pitch and since there was no commitment, he quickly filled it out.
It took just seconds. But now, five years later, he's struggling with the $13,000 of debt that he accrued across several different credit cards after using them to pay for dinners, movies, and car repairs. "They should put warnings on credit cards like they do on cigarettes," he says, "to make sure people know how dangerous the cards are."