Federal law now prohibits lenders from using certain tactics to market credit cards to young adults, so now some major lenders are looking for new ways to make a name for themselves on college campuses across the country.
One new strategy is partnering with colleges to make student IDs into prepaid cards, which will not allow students to rack up credit card debt, but will give them a little more spending flexibility, according to a report from Dow Jones Newswires. Major lenders such as U.S. Bank and American Express have entered into these deals with dozens of colleges across the country, allowing college kids to use their student IDs like they would any debit card at businesses both on and off campus, since the piece of plastic bears the logo of companies like Visa, MasterCard and AmEx.
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These cards can typically be loaded from any traditional bank account, and thus used like a debit card, but typically do not carry the large amounts of fees typically associated with prepaid cards, the report said. Many will still charge students for ATM withdrawals, inactivity on the account, or receiving paper statements, but annual or monthly account maintenance fees are typically not applied.
For banks, this type of card is a win-win, the report said. They still get to be on campus despite federal rules about marketing credit cards to young adults, are able to obtain the information for college students for future marketing, and also have forged an existing connection with potential borrowers.
“We see the students as really the future customers of U.S. Bank,” Whitney Bright, vice president and market leader for campus banking for U.S. Bancorp, told the news agency. “They are the ones that we hope will bank with us while they are in college and look to us as they graduate.”
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New federal laws, imposed by the Credit Card Accountability, Responsibility and Disclosure Act, prevent young adults under the age of 21 from obtaining a credit card of their own without having either an adult co-signer on the account or otherwise providing proof that they could afford the account on their own. Nonetheless, recent studies have found that the majority of college students have at least one credit card.
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It is difficult to say which type of payment card is best for a college student: prepaid, debit or credit. And yes, credit cards are very much still an option that is available to college students, even as the CARD Act placed some restrictions on the marketing and underwriting of credit cards to people under the age of 21. There are certain rules to consider, but at the end it would be a case-by-case decision. And this is a testament to how much prepaid cards have improved.
Agree! It depends on usage, parental controls etc. Credit cards are great but it is like an open wallet for certain kids. Prepaid cards have predatory fees but better control. Here is a chart to GreenDot, Mango etc prepaid card features + fees: https://www.kaiku.com/card/compare_us