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Oct 20, 2009
Categories: Consumer Lending

Reg Z Proposal: Marketing to Students

Posted by Steve Van Beek

The Credit CARD Act limits card issuers ability to market open-end consumer credit to college students.  The Federal Reserve has proposed to implement this restriction in new Section 226.57 of Regulation Z.  This posting will focus on the marketing to college students while a future blog posting will cover the restrictions and requirements related to creditors who offer "college affinity cards."

Definition of College Student Credit Card & College Student
The proposal defines "college student credit card" as a credit card offered to any college student.  The definition of "college student" would extend to any student attending an institution of higher education regardless of age and is not limited to undergraduate students but would apply to all students including those enrolled in graduate programs or joint degree programs.  

Prohibited Inducements
Credit unions will be prohibited from offering a college student "any tangible item" to induce a student to apply for or open an open-end consumer credit plan if the offer is made:
  • On the campus of an institution of higher education;
  • Near the campus of an institution of higher education; or 
  • At an event sponsored by or related to an institution of higher education.    
Comment 57(c)-1 clarifies that a "tangible item" includes any physical item (such as a gift card, t-shirt, magazine subscription, etc.) but does not cover non-physical items such as discounts, reward points, or promotional credit terms.  Comment 57(c)-2 clarifies that if an item is offered to all students (and not dependent upon applying for an account) that the item is not an inducement.

Comments 57(c)-3 and 57(c)-5 helps explain which marketing activities are "near the campus" and which are "at an event sponsored by or related to an institution."  The proposal uses 1,000 feet to determine whether a location is "near the campus."  Comment 57(c)-5 indicates that an event is related to an institution if "the event uses the name, emblem, mascot, or logo of an institution of higher education in a way that implies that the institution of higher education endorses or otherwise sponsors the event."

What if the credit union mails an offer of a tangible item to a college student (at or near the campus)?  Comment 57(c)-4 indicates this would be prohibited because the offer for a tangible item was sent to a location on campus.  See pages 20-21 for the language of the comments to Section 226.57(c). 

Note: The prohibitions in subsection (c) applies to all open-end consumer credit plans and is not limited to credit card offers. 

If your credit union markets to college students, be sure to analyze how this proposal will impact your marketing plans.  Remember, this is a proposed rule.  While the Federal Reserve's hands are tied in some respects due to the statutory language of the Credit CARD Act, the Fed does have some latitude and flexibility.  

What about branches on or near campus?
The proposal does not provide any guidance for institutions that have branches on a college campus. Are exceptions allowed in these instances?  It does not appear so.  Thus, this section could prohibit the credit union from offering account opening bonuses to college students solely because the branch is located on or near the campus of an institution of higher education.  Interestingly, the college student would be able to go to another branch (that is not located on or near campus) and receive the bonus to open an account.  Remember, this section covers any open-end consumer credit plan.  

Send your comments to the Federal Reserve (or NAFCU if you are NAFCU-member) if you believe branches on or near a college campus are different and deserve an exception (i.e., because the student is coming to the credit union rather than the credit union coming to the student).  Try to focus your comments on why accepting applications and offering a bonus in a credit union branch on campus is different than a card issuer handing out t-shirts at a college football game to induce students to apply for credit card account.  

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