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44–190 PDF 2008

PROBLEM CREDIT CARD PRACTICES 

AFFECTING STUDENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JUNE 26, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–125 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

CAROLYN B. MALONEY, New York, Chairwoman 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

ED PERLMUTTER, Colorado 

JUDY BIGGERT, Illinois 

TOM PRICE, Georgia 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

WALTER B. JONES, JR., North Carolina 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 26, 2008 .................................................................................................... 1 

Appendix: 

June 26, 2008 .................................................................................................... 43 

WITNESSES 

THURSDAY, JUNE 26, 2008 

Clayton, Kenneth J., Managing Director and General Counsel, ABA Card 

Policy Council, American Bankers Association ................................................. 14 

Lawsky, Benjamin, Deputy Counselor and Special Assistant to the Attorney 

General, Office of the Attorney General (New York) ........................................ 8 

Lindstrom, Christine, Director, Higher Education Project, U.S. PIRG ............... 10 

Neiser, Brent A., Director of Strategic Programs and Alliances, National 

Endowment for Financial Education .................................................................. 17 

Thurman, Brett, President, Undergraduate Student Government, University 

of Illinois at Chicago ............................................................................................ 12 

Williams, Erica L., Policy and Advocacy Manager, Campus Progress Action .... 16 

APPENDIX 

Prepared statements: 

Maloney, Hon. Carolyn B. ................................................................................ 44 

Hinojosa, Hon. Ruben ....................................................................................... 46 

Hodes, Hon. Paul .............................................................................................. 48 

Waters, Hon. Maxine ........................................................................................ 49 

Clayton, Kenneth J. ......................................................................................... 53 

Lawsky, Benjamin ............................................................................................ 61 

Lindstrom, Christine ........................................................................................ 73 

Neiser, Brent A. ................................................................................................ 81 

Thurman, Brett ................................................................................................. 86 

Williams, Erica L. ............................................................................................. 89 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Maloney, Hon. Carolyn B.: 

Written statement of Hon. Louise M. Slaughter ........................................... 96 

Hinojosa, Hon. Ruben: 

‘‘Chairman Miller Statement on FTC’s New Consumer Guide on Student 

Lenders’ Deceptive Marketing Practices,’’ a press release from the Committee on Education and Labor dated June 25, 2008 ................................ 98 

FTC Facts for Consumers ................................................................................ 99 

‘‘The Campus Credit Card Trap, A Survey of College Students and Credit 

Card Marketing,’’ a report issued by U.S. PIRG Education Fund, dated 

March 2008 .................................................................................................... 103 

(1) 

PROBLEM CREDIT CARD PRACTICES 

AFFECTING STUDENTS 

Thursday, June 26, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:02 p.m., in room 

2128, Rayburn House Office Building, Hon. Carolyn B. Maloney 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Maloney, Watt, Moore of Kansas, Hinojosa, Green, Clay, Scott, Cleaver; Biggert, Castle, Jones, 

and Hensarling. 

Chairwoman MALONEY. I call this hearing to order. This hearing, 

entitled ‘‘Problem Credit Card Practices Affecting Students,’’ focuses on the issues that arise in the context of credit card marketing to students, especially college students. I welcome the witnesses, and I thank them very much for being here, and for their 

testimony. 

This hearing is the outgrowth of response to our comprehensive 

credit card reform bill, the Credit Cardholders’ Bill of Rights. At 

our roundtable last year, and in later discussions, it became clear 

that many issuers, consumer advocates, and Members share a special concern with students’ use of credit cards. 

As new entrants to credit, students seem particularly vulnerable. 

As some of you will recall, in the late 1990’s, credit card marketing 

on campuses became the subject of press reports and controversy. 

At the request of Congresswoman Louise Slaughter, Congressman 

John Duncan, and Congressman Paul Kanjorski, the GAO undertook a study of college students and credit cards issued in June of 

2001. 

I would like to take this opportunity, with unanimous consent, 

to enter into the record Congresswoman Slaughter’s testimony. 

The GAO concluded that while credit cards offered students 

many advantages, there were grounds for concern that college students were more likely than other credit card users to end up with 

high debts. 

As the GAO report found, credit card issuers market intensively 

to college students. This is not surprising. Students represent new 

customers who live bunched together, and are thus cost-effective to 

reach. Students want and often need credit, but may not realize all 

the consequences of applying for or getting a credit card. 

2 

In some cases, schools facilitated the issuers’ efforts to market 

cards to students. In his 2000 book, ‘‘Credit Card Nation,’’ Professor Manning of the University of Rochester documented arrangements between universities and colleges and issuers, under which 

the schools received money from the issuers for the right to market 

credit cards on campus to the students. Manning found that these 

agreements resulted in payments to the 300 largest universities of 

some $1 billion. 

About 18 States have since passed laws restricting or regulating 

on-campus marketing by issuers. In addition, many schools have 

banned on-campus marketing. 

But the issue is not resolved. This spring, New York Attorney 

General Andrew Cuomo announced that his office was conducting 

a nationwide investigation into whether credit card marketers offered payments or other incentives to colleges in exchange for exclusive access to the institution’s students. 

Marketing to students often involves offering a reward for applying for a card. In a March 2008 survey, U.S. PIRG listed tee shirts, 

food, sports toys, caps, mugs, and sodas as commonly offered gifts. 

Seven years after the GAO report, major issuers have introduced 

a number of important policy changes to address the special problems of students and credit cards. For example, American Express 

says that their Blue for Students card has more stringent limits on 

the size of credit lines than the normal blue card, and that they 

do not actively market to students, on campus or otherwise. 

Citi’s Platinum Select card was acknowledged by Consumer Action for rewarding students based on responsible credit behavior, 

and was a top pick for best student credit cards, as reported in 

SmartMoney.com in August. Bank of America says it caps students’ available credit at $2,500, 

and does not raise students’ interest rates retroactively for any reason. 

I applaud these and similar efforts which represent best practices consistent with the standard principles for voluntary action 

that resulted from the roundtable on credit cards I convened last 

year. But the question is, are voluntary efforts enough? Will the 

force of competition drive those who want to move to best practices 

back to doing less? And, ultimately, what is the best way to ensure 

that students become responsible users of credit? 

In fact, studies since the GAO report show that credit card debt 

held by students is rising. Using data from the Federal Reserve 

survey of consumer finance from 2004 and 1989, the nonpartisan 

organization DEMOS calculated that young adults between ages 18 

and 24 have 22 percent higher credit card debt than their peers 

had in 1989. 

Similarly, studies conducted by Nellie Mae show a significant 

rise in credit card usage among students. A 2005 report done by 

Nellie Mae of students in college found that 76 percent of undergraduates had a credit card, as opposed to 67 percent in 1998, that 

43 percent have 4 or more cards, as opposed to 27 percent in 1998, 

and that the average balance on student credit cards was over 

$2,000, up from $1,800 in 1998. 

Perhaps of most concern, students’ use of credit cards to pay for 

tuition is also going up, even though Federal student loans are genVerDate Aug 31 2005 14:51 Sep 23, 2008 Jkt 044190 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\44190.TXT TERRIE
3 

erally available at lower rates, and on more flexible repayment 

terms. In the 2001 GAO study, about 12 percent of undergrads said 

that they used credit cards to pay for tuition. The 2005 Nellie Mae 

credit report study showed that figure doubling; 24 percent of 

undergrads used credit cards to pay tuition. 

These are the issues we will be looking at. I look forward to the 

testimony. And I now yield to Mrs. Biggert, for as much time as 

she may consume. 

Mrs. BIGGERT. Thank you, Madam Chairwoman, for holding this 

hearing to address credit card practices affecting students. I am 

glad that today we will recognize the success story of students’ access to credit. On the other hand, I am also pleased that we will 

be looking into problems that some students have, ranging from selecting the right credit card to difficulty managing their credit, or 

a budget, for that matter. 

Of course, another related issue, but for another day and another 

committee, is how the College Cost Reduction Act has caused the 

student loan market to dry up. This fall, more students may find 

their credit card a financial life preserver, unless we fix some of the 

provisions of that other bill. 

But today it is important that we look into an inclusive activity 

among colleges and universities or their employees and credit card 

companies. Some disturbing studies indicate that such activities 

have led to unfair marketing practices and reduced card competition on campuses. Institutions of higher education should be safe 

harbors for students to learn and to grow. This should include educating students about credit, how to use it, and most importantly, 

how to use it responsibly. 

Like advisors that steer students away from the wrong class, I 

think it’s important that students are advised on matters of finance, and steered away from the wrong financial product, whether 

it be a credit card, a student loan, or other line of credit. 

It is important that we help students, as well as all young people, understand the importance of establishing credit and a good 

credit record at a young age. It is the financial foundation on which 

they will build their future. 

Unfortunately, starting off on the wrong foot seems to be a trend 

among some college students, who first look at the free apparel, a 

tee shirt or a coupon for free food, before looking at the interest 

rate or payment terms of a credit card. And that is a problem. 

Students need to understand that there is no such thing as a free 

lunch. We know that the U.S. financial literacy rates are low. 

Courses in personal finance and economics are not a top priority, 

compared to English, math, science, and history. That is a problem, 

too. Personal finance and economics should be a top priority for colleges and universities, technical schools, secondary schools, students, student governments, and organizations. 

And, some would argue, for Members of Congress, as well. I don’t 

think my colleagues would disagree with me when I say that some 

Members could use a little Econ-101. But I digress. 

The government, colleges and universities, credit card companies, 

and our students need to work together to strike the right balance 

between consumer education and fair and transparent credit card 

marketing. How we accomplish that goal, through legislation, reguVerDate Aug 31 2005 14:51 Sep 23, 2008 Jkt 044190 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\44190.TXT TERRIE
4 

lation, competition, private sector innovation, financial education, 

or a combination of these, is what brings us here today. 

I believe that today’s witnesses will reveal how financial education can and should play one of the biggest roles in this effort. 

My goal is to promote financial education on college campuses, so 

that students are armed with the financial tools that they need to 

use credit wisely, while not cutting off students’ access to credit. 

College students have greater access to credit, access to cheaper 

credit, and access to financial education today than ever before. So 

I hope that no action Congress takes will reverse that positive 

trend. 

With that, I look forward to hearing from today’s witnesses, and 

yield back the balance of my time. 

Chairwoman MALONEY. Thank you. I yield 4 minutes to Congressman Cleaver, who has his own bill on this very important subject. 

Mr. CLEAVER. Thank you, Madam Chairwoman, and I would like 

to express appreciation to you for all of the work that you have 

done on this issue. And I am very much appreciative of the opportunity to participate in this hearing. 

The impact of credit cards on the lives of minors and students 

is a particular focus of mine, and I am pleased that we are coming 

together today for the opportunity to discuss it. 

In March of 2007, Congressman Udall and I introduced H.R. 

1461, the Credit Card Accountability Responsibility and Disclosure 

Act of 2007. This legislation, important as far as we were concerned, included a provision which enumerated the responsibilities 

which credit card issuers must undertake in order to issue credit 

cards to minors. 

I believe that this is extremely important because we, as a Nation, cannot allow young people to go into the kinds of debt that 

they are experiencing, because I can foresee a similar problem with 

credit cards that we have had with subprime loans. I will talk more 

about that as we go along. 

I read in my hometown newspaper, the Kansas City Star, that 

according to the April 9th JumpStart survey, high school seniors 

correctly answered just under one-half of the questions on a financial literacy test. This shows that minors are not getting enough financial literacy education. And, thus, giving them credit cards 

without the kinds of knowledge that they need is, I think, doing a 

great disservice to them. 

What we are saying is that they must have a steady and substantial income with which to pay off the credit card debt if they 

are issued a credit card. And, of course, if a minor is legally emancipated, he or she only has to prove that they can, in fact, pay that 

credit card debt. 

Now, I want to get into some serious discussion with our panelists, and I appreciate them coming. I need to add one other, I 

think, important fact. 

From one perspective, I think that it is reasonable and we are 

somewhat justified in seeing that college students who work have 

an opportunity to get credit cards. I think it’s important to understand that 55 percent of students report that they work part-time 

in college; 45 percent of the students who are in college today do 

5 

not work at all. And credit card issuers must disclose the terms of 

an agreement, and they all who are represented here today will say 

they do that. 

But according to the 2006 GAO report, increased complexity in 

rates and fees heighten need for more effective disclosure to consumers. Some of these statements are written in a 27th grade language. And so let’s take, for a moment, if I graduate from elementary school, middle school, high school, get a BA degree, go to seminary, and then come out and get a Ph.D., I will still have at least 

3 years to go before I reach the 27th grade. And we are saying that 

these college students, many of them 18 or 19 years old, ought to 

be given credit cards. 

I think that this is a step in the wrong direction. Many of these 

students are going to get out of college, end up in the same situation with the subprime individuals, and they’re going to find that 

they cannot pay their debts. It is a tragedy waiting to happen. I 

have seen it happen in my own family with my own son, who has 

no business having a credit card. He barely has business having 

cash. 

And I think it is doing enormous damage for us to come to the 

conclusion that we can just send out credit cards because college 

students may be in the higher-income levels of society. I think it 

is wrong, and I think we have to put some stops to it today. 

I appreciate it, and I yield back the balance of my time. 

Chairwoman MALONEY. The Chair recognizes Mr. Hensarling for 

5 minutes. 

Mr. HENSARLING. Thank you, Madam Chairwoman. As I look 

upon the title of today’s hearing, ‘‘Problem Credit Card Practices 

Affecting Students,’’ I am just curious if I will see a hearing one 

day, ‘‘Solution Credit Card Practices Affecting Students,’’ because 

as I observe the market, the ability of students to have access to 

credit cards creates a whole lot more solutions than it does problems. 

Now, I have seen through this hearing that we will hear genuinely sad tales of lives that have been significantly harmed by abusive credit cards. I assume these tales will be true, I assume they 

will be sad, and I assume we should pay very careful attention to 

them. 

But I am also curious during this hearing whether or not we will 

hear tales of students who: but for access to a credit card, could 

not pay their tuition; but for access to a credit card, could not pay 

for their books; but for access to a credit card, could not pay for 

their room or board; but for access to a credit card, could not fly 

home during the holidays; and the list goes on and on. 

I have no idea why, but when I was a sophomore at Texas A&M 

University, some credit card company decided that I was worthy of 

a credit card. They sent me a mail solicitation. I didn’t seek the 

card. They sent it to me, and I was glad to receive it. By no stretch 

of the imagination do I come from a poor family, but I don’t come 

from a rich family, either. 

I worked my way through school, bussing tables, working on a 

loading dock, and being a night clerk. My ability to have that credit 

card several times helped me with automobile repairs on a very decrepit 1965 Ford Mustang. And I wonder, but for that credit card, 

6 

I wouldn’t have been able to afford those repairs. But for those repairs, I would not have been able to go to work. Had I not been 

able to go to work, I could not have completed my college degree. 

Now, I have one testimonial for the fact that at least this particular individual was very happy to receive a credit card, and it 

served a very useful purpose in my educational life. 

Whatever the perceived or real illness in the student credit card 

market may be, I fear that any cure from this committee may 

prove worse than the illness. Having said that, though, I am, with 

some interest, interested in viewing further the details of the gentleman from Missouri’s bill. And particularly if it deals with credit 

card issuance to minors, I think it would be very, very worthy of 

serious contemplation and consideration by this committee, and I 

am always happy to surprise my friend from Missouri and occasionally say nice things about his legislation. 

But again, I think we must remember that every restriction, 

every limit, every regulation has a high probability of making credit less accessible, less affordable, and more costly, ultimately helping rob people of their educational opportunities. Especially at a 

time of skyrocketing tuition, when we know that the student loan 

market is in full retrenchment, I would hope this committee would 

not consider any legislation where the cure is going to prove worse 

than the illness, and rob thousands—tens of thousands, perhaps— 

of their educational opportunities. 

And, as an aside, let’s remember, with very few exceptions, the 

people in college are legal adults. They can vote, they can contract, 

they can marry, and they can serve this Nation in uniform. Are we 

going to deny them their basic freedom, their freedom of economic 

opportunity to own a credit card? 

I see at least one study, as another aside, that shows that students pay off their credit card bills on time 65 percent of the time, 

which is better than the adult population, as a whole. 

Now, again, I have no doubt that there are abuses in the market 

by credit card companies. I don’t doubt that. I don’t doubt that 

many students do not use credit responsibly. But maybe the solution would be greater financial literacy. Maybe the solution would 

be more effective disclosure. Maybe part of the solution is personal 

responsibility, and maybe part of the solution is even increased enforcement of our anti-fraud and deceptive trade practices law. And 

I suspect that would prove to be far, far more beneficial to our student population than anything else that would deny them access to 

credit cards, make it less available, more expensive, and help deny 

them their educational opportunities. 

And with that, Madam Chairwoman, I yield back. 

Chairwoman MALONEY. The Chair recognizes Congressman Scott 

for 3 minutes. 

Mr. SCOTT. Thank you, Madam Chairwoman. I really appreciate 

this timely hearing. This issue is very, very important. It is not 

just a personal financial issue; it is a problem for the entire Nation. 

Household debt has ballooned from $59 billion in 1980 to $830 billion, as of 2006. Just this statistic alone recognizes the importance 

and the gravity of the issue. 

7 

And nowhere is it more important for us to reign in the abuses 

of credit cards than with our young people, and especially they are 

a targeted group. 

Now, there are some in the credit card industry that are doing 

some beneficial things, and correcting this. I want to single out, for 

example: JPMorgan Chase and Citigroup, as we all know, have 

made some changes to their business practices, and they should be 

commended. 

But there are far too many deceptive practices that are going on. 

I would like to just address one important thing about what we can 

do, because no matter what the industry does, the issue finally 

boils down to that individual taking responsibility for his or her 

own decisions. And we have to help that. 

We have to help our college students be able to understand the 

responsibility on their part. That credit card is sort of like a rope 

that is given to a man to pull himself up. He can either use that 

rope to pull himself up, or he can use that rope to hang himself. 

It’s up to that individual. And in so many cases, our college students are using this credit card, or rope, to cause damage to themselves. 

So, maybe we can focus on a few things. For example, why not 

bring the parents into this? We are looking at kids who are 16, 17, 

18, and 19 years old. They are just at the start of their lives. They 

don’t have the gravity of experience that older people do. And I 

think that might be an example. Parents have to become more 

proactive in their students’ lives, in their childrens’ lives, as far as 

talking to them about money, and explaining the pitfalls of financial debt and consequences. For every action, there is a consequence to that. 

We need to see if there are any programs we can come up with 

that can be available which parents can utilize to this end. In the 

final analysis, oftentimes it is the parents who have to bail them 

out, and pay these bills. So, it makes sense. Are there any specific 

classes that are going on on the college campuses themselves that 

relate to financial literacy? 

Financial literacy and education is the area that we are not paying enough attention to. And if you are financially literate, if the 

students are geared—and the parents—to read the fine print, to 

know what you’re getting into before you sign up to these cards— 

it’s not just a card there to get. 

And I think that this is very important, Madam Chairwoman. 

Thank you very much for the opportunity, and we will get into 

some of this as we move forward. 

Chairwoman MALONEY. Thank you very much. And our last 

speaker is Congressman Castle for 5 minutes. 

Mr. CASTLE. Thank you, Madam Chairwoman. In preparation for 

this hearing, I talked to some of the folks on my staff who attended 

college more recently than I attended. They all attended college 

more recently than I did, but I only spoke to a few them about 

their overall understanding of credit cards. 

Each of them knew that credit cards are not free money, but 

that, indeed, anything bought with a card would have to be repaid. 

These individuals were taught by their parents or others while in 

high school about the importance of being responsible with credit. 

8 

However, some statistics have suggested that 18-year-olds are 

more likely to take on more credit card debt than adults over age 

22. We cannot make these new credit card users utilize credit more 

wisely. But I strongly believe that education and consumer choices 

would greatly benefit students and help reduce the incidence of irresponsible use of credit cards. 

I would like to emphasize that credit cards, when used responsibly, can be beneficial to younger adults. For most students, buying books and supplies for one semester can cost more than $500. 

In addition, some students may have their heart set on graduate 

school, and building credit through use of credit cards could expand 

their choices when applying for student loans. 

Just like you and me, students may encounter unexpected expenses: car maintenance for commuters; an airplane ticket home to 

visit relatives; or even a trip to the emergency room for a school 

athlete. Unlike students, some of us could pay for these expenses 

immediately, because we have full-time jobs that provide us with 

a steady income. Students, on the other hand, could benefit from 

having extra time to make a payment through the use of a credit 

card, while at the same time building a credit history for their future. 

With that, I look forward to hearing the testimony of the panel 

before us. And, in particular, I commend Mr. Thurman for his efforts in increasing awareness among his peers with regard to student debt in the face of the rising costs of college education. I yield 

back, Madam Chairwoman. 

Chairwoman MALONEY. Thank you very much. We are fortunate 

today to have six witnesses: Benjamin Lawsky, deputy counselor 

and special assistant to Attorney General Cuomo; Christine 

Lindstrom, director of the higher education project of U.S. PIRG; 

Brett Thurman, president, undergraduate student government, at 

the University of Illinois at Chicago; Kenneth Clayton, managing 

director and general counsel, American Bankers Association, card 

policy council; Erica Williams, policy and advocacy manager, Campus Progress Action; and Brent Neiser, director of strategic programs and alliances for the National Endowment for Financial 

Education. 

Without objection, your written statements will be made a part 

of the record. You will each be recognized for a 5-minute summary 

of your testimony. I now recognize Mr. Lawsky, and we will go 

right down the row. 

STATEMENT OF BENJAMIN LAWSKY, DEPUTY COUNSELOR 

AND SPECIAL ASSISTANT TO THE ATTORNEY GENERAL, OFFICE OF THE ATTORNEY GENERAL (NEW YORK) 

Mr. LAWSKY. Thank you very much. I really appreciate your having us here today. Attorney General Cuomo would have loved to 

have been here. We had a large narcotics take-down scheduled for 

today, and he couldn’t make it. He is back in the State. 

Let me start by saying that I am not an expert, like other members of this panel probably are, in the credit card industry. What 

I can do is tell you about the investigation we have ongoing, to 

some extent. 

9 

And I want to add one other caveat, which is that because our 

investigation of the credit card industry is ongoing, there are certain things, unfortunately, I can’t fully get into, and I may have to 

defer on certain questions you ask. 

With that said, in 2007, Attorney General Cuomo began a largescale nationwide investigation of the student loan industry, as you 

alluded to in your opening statement. And that investigation indicated—and what we found was—that lenders around the country 

were paying off schools, basically, to become the recommended 

lenders at the universities. They were basically paying to be the 

recommended lender to the students. It was enormously lucrative 

to the lenders, and it was also, at times, lucrative to the schools. 

We settled quite a few of those cases. Most of the schools and the 

lenders agreed to stop the practices. But, ultimately, what we did 

was we sponsored legislation, first in Albany and then, with the 

help of our friends here in Washington, a bill is now pending. It 

is in the Higher Education Act, and it hopefully will pass relatively 

soon, the Student Loan Sunshine Act, which will ban these practices across the country. 

But what our investigation of the student loan market indicated 

to us that is relevant for today is really two things. First, that student debt in this country is enormous. And second, that the use of 

the university by businesses as a bottleneck to get access to students through relationships with business officers at schools was 

something that wasn’t just limited to the student loan industry. We 

started looking in other areas, and we found it with textbooks, we 

found it with computers, we found it with healthcare plans for students, and we found it in the food service industry. And, maybe 

most disturbingly, we found it in the credit card industry, as well. 

So, we have investigations going on in all those areas. But with 

respect to the credit card industry, what we found was—and what 

we are continuing to find—is at a very, very large number of universities around the country, there are highly lucrative, somewhat 

secret, exclusive marketing agreements at the schools with particular credit card companies. The schools have, in many cases, 

agreed not to make these agreements public to anyone. 

Fortunately for us, because we have a little something called the 

subpoena, we have been able to obtain at least many of those 

agreements, and we have been able to really analyze many of the 

provisions in them. And I think when those provisions in these 

agreements become public some time relatively soon, I think it will 

shock many people, the kind of relationships that some of these 

credit card companies have with the schools. 

These deals usually give very significant marketing rights to the 

credit card companies at the universities. Often, for example, there 

will be a provision that says you get to—the university will provide 

a list of all student data, so you get the student’s e-mail addresses, 

you get their home addresses, you get their school addresses, you 

get their phone numbers, and you can market to them by phone 3 

times a year, and by mail 4 times a year. And in return, the school 

is going to get paid $1 million or $2 million a year. 

The marketing practices that then go on at the universities, 

which I am sure my colleagues will talk about in greater detail, are 

extremely aggressive. They often involve giving away free goods to 

10 

entice students to sign up for cards, and they often involve using 

students to recruit more students, actually using peer pressure to 

get more students to sign up for cards. 

We are most focused right now, though, on the—what are called 

sometimes affinity arrangements, which is where the schools allow 

in the agreements—they are getting paid, basically, to allow the 

credit card companies to co-brand and market their cards, for example, as the Georgetown Card, or the Harvard Card, or the Yale 

Card. 

And that is very similar to what we found in the student loan 

investigation, where there was an endorsed—a payment to the 

schools to allow—and the schools, in return for that payment, were 

basically representing to students, ‘‘This is our preferred lender.’’ 

Here, it’s, ‘‘This is our preferred credit card.’’ And students, of 

course, trust their alma mater, they trust their schools. It is enormously powerful, and the groups know this. And we are busy investigating that relationship very closely, and obviously, we will continue to do so. 

I see I am out of time, but I will just say absolutely we certainly 

stand ready, as we did in the student loan industry, as our investigation proceeds. To the extent there is a systemic solution that 

works, it probably makes sense ultimately for that solution to come 

from a legislative body. And we certainly stand ready to help in 

any effort here to do that. Thank you. 

[The prepared statement of Mr. Lawsky can be found on page 61 

of the appendix.] 

Chairwoman MALONEY. Ms. Lindstrom for 5 minutes. 

STATEMENT OF CHRISTINE LINDSTROM, DIRECTOR, HIGHER 

EDUCATION PROJECT, U.S. PIRG 

Ms. LINDSTROM. Good afternoon. Thank you for the invitation to 

address the issue of credit cards on campus. My name is Christine 

Lindstrom, and I am the higher education program director for 

U.S. PIRG. I work with college students on campuses across the 

country to make sure that college stays affordable and accessible. 

Our data suggests that credit card debt among college students 

is growing. We have also documented that excessive, high-cost 

credit card debt has exacerbated the crisis that students already 

face from the rising costs of higher education. Our project has focused on several areas where educational costs have skyrocketed. 

We have mentioned some of them. 

Basically, if States have pulled back on funding for public higher 

education, more of the cost of college has fallen on the shoulders 

of college students. Now students are increasingly burdened with 

educational debt, which can cause them, once they graduate, to opt 

out of lower-paying, but socially valuable careers, like teaching. 

In addition, textbook costs, as well as other ancillary educational 

costs, continue to increase. And, as a result, students have become 

more reliant on their newly acquired lines of credit to help offset 

these costs. 

From that vantage point, last fall, we launched the Truth About 

Credit campaign on college campuses across the country. The 

project has two goals. First, we are educating students about being 

good credit card consumers through a counter-marketing campaign 

11 

that we call FEESA. It has a tag line stating, ‘‘Free Gifts Now, 

Huge Debt Later.’’ We are actually dressed up like credit card marketers on the campus, complete with polo shirts, and we’re able to 

educate students about being able to navigate the marketplace. 

We have literally passed out thousands of these booklets, ‘‘The 

Consumer’s Guide to Credit Cards,’’ on hundreds of campuses 

across the country, and requests roll in every day from campus administrators to be able to use these guides in orientation, and to 

help with their education efforts. 

Second, we are working with student governments and administrators to establish principals on campus that reign in aggressive 

credit card marketing on the campus marketplace. 

As part of this effort, last fall, we conducted a major survey and 

released the results in March. And that is a report called, ‘‘The 

Campus Credit Card Trap.’’ You have seen some of the detailed results of this survey in my written testimony that I submitted. What 

we did find is that, indeed, college students are a target market for 

the industry. 

Students are literally inundated with marketing tactics from 

credit card issuers, with high numbers of them reporting regular 

telephone solicitations, and 80 percent of the participants reporting 

that they receive mail solicitations. Some reported hundreds, but 

on average we found that students got about five solicitations a 

month from credit card issuers. 

And, of course, they are regularly enticed into applying for credit 

cards at tables on campus through the offer of free gifts like pizza, 

candy, tee shirts, and beach chairs. And in one instance, we found 

iPods being raffled off for credit card applications on campus. 

Our survey also found that, indeed, students are using their 

credit cards to offset educational costs. A full 55 percent of participants had paid for textbooks on their credit cards. And our other 

studies show that students pay, on average, $900 a year for textbooks. 

Fifty-five percent of participants report putting day-to-day expenses on their credit card, including gas and public transportation 

costs to get back and forth to school. And as noted, 24 percent of 

our survey participants also reported putting tuition on their credit 

cards. 

Additionally, a significant number of participants had gone over 

the limit on their cards, and had lost a card already, as a result. 

Students in the survey supported our principles for responsible 

credit card marketing, including a policy to stop sharing their 

names with the credit card industry, a policy that would promote 

a fair card with better terms and conditions to be available for application on the campus, and a policy that banned the use of free 

gifts, which so often obscures students’ abilities to be good consumers, when considering whether or not to apply. 

U.S. PIRG has looked at a number of pieces of legislation addressing the issue of credit card marketing. We believe that the 

best marketing solutions can be implemented on a campus-by-campus basis. However, we support legislation that would give students the ability to choose if they would like to have their names 

sold to credit card issuers for marketing purposes. 

12 

We also support a variety of legislative proposals that attempt to 

ban or control some of the more unscrupulous terms and conditions 

contained in credit card contracts. 

I would like to make a final point that we do not think that college students should be banned from being able to access or use a 

credit card. Instead, we think that college students should be treated just like every other consumer in America with no special rights 

or privileges, and be able to apply for and get credit according to 

the same standards as everybody else. 

Currently, underwriting standards are generally waived for college students, so they meet no income or credit background criteria 

in order to qualify for credit. Such lax standards have created a 

campus marketplace in which students are unfairly marketed to, 

taken advantage of with bad terms and conditions, and plunged 

deeper into debt. 

Thank you for your time. 

[The prepared statement of Ms. Lindstrom can be found on page 

73 of the appendix.] 

Chairwoman MALONEY. Mr. Thurman? 

STATEMENT OF BRETT THURMAN, PRESIDENT, UNDERGRADUATE STUDENT GOVERNMENT, UNIVERSITY OF ILLINOIS AT CHICAGO 

Mr. THURMAN. I don’t have the statistics that some of my colleagues here at this table have. Instead, what I have for you is a 

story. I would like to thank you very much for taking the time to 

listen to a student. And I would like to ask your patience with me, 

as this story is just very blunt, very point of fact, and not with any 

statistics to back it up. I rely upon my colleagues here for that. 

I attend school at the University of Illinois at Chicago. Our university has very strict policies about credit card companies not 

being allowed on campus to offer any kind of information, to offer 

any kind of solicitation, or offer any kind of prizes or free food to 

our students. 

As a response to this, I have noticed in both my freshman and 

sophomore years—this would be 2005 and 2006—that you will encounter a student, or someone who appears to be a student on campus, and they will give you a piece of paper, and that piece of paper 

will say, ‘‘Subway, free sub sandwich Monday through Friday, 1:00 

p.m. to 5:00 p.m.’’ for example, ‘‘just this week only,’’ and this will 

be in the first 2 weeks of school. 

The Subway is exactly 1,020 feet away from the nearest university building. I went ahead and paced it off earlier this week. You 

go to the Subway, you hand the piece of paper to the cashier, and 

he tells you it’s not really a coupon, you need to see the gentleman 

in the corner. You go to see the gentleman in the corner, and he 

has a form for you to fill out. It is an application for a Discover 

Card. 

At this point, I really don’t have a problem with what has happened so far. I understand that is a marketing technique. I understand that some people would consider it a little shady. But I am 

a student of political science. I am a student of the markets, and 

I am fine with people trying to find ways to pursue their market 

advantage. 

13 

Here is the problem I have. I walk up to this gentleman and I 

ask him, ‘‘How is this going to negatively affect my credit? My parents told me about stuff like credit reports before. Is this going to 

show up?’’ 

The response is, ‘‘No, you don’t even have to accept the card. All 

you do is wait until it comes in the mail and just throw it away. 

You don’t have to call and accept it.’’ No one tells me there is going 

to be a market on my credit, saying that I was inquired about. 

‘‘Well, what if I really don’t want a card at all, can I still get a 

sandwich?’’ 

I get a response, ‘‘Well, you need to fill out the form. But don’t 

worry, you can just throw out the card. You’re really not even applying for a card, you’re just giving us your information so that we 

can see if we can offer you a card,’’ which, if you write that down 

on paper, seems kind of contradictory. 

These are the things I have a problem with. This happened for 

2 years at the Subway restaurant with Discover. At first, I thought 

the problem had been solved, or it had gone away after U.S. News 

and World Report had actually interviewed one of my roommates 

who got a card in this manner. 

Then, just a few months ago, end of April/early May, I am walking down the same street and a friend of mine comes up to me and 

says, ‘‘Hey, Jimmy John’s is giving away free sandwiches. I got this 

slip from someone on campus.’’ 

Jimmy John’s is across the street from Subway. I went ahead 

and went into Jimmy John’s, and there is a bank of four or five 

laptops set up. And so, I ask the exact same questions. And now 

it’s not for Discover Card. It’s for a Chase—I forget if it was 

MasterCard or Visa. And I ask the same questions and I get the 

same vague responses, I get the same misleading responses. And 

that is the part that really upsets me. 

And that’s what I really have for you, is our story from UIC. 

We’re an urban college. We have 16,000 undergraduate students. 

If I had to take a guess, I would say at least 12,000 of us have 

credit cards. 

And with that said, I wish Mr. Hensarling were still here, so I 

could thank him. I would like to take this opportunity to point out 

that credit cards are an extremely useful tool for students. 

If not for credit cards, but for access to a credit card, many of 

our students couldn’t pay for things such as a summer term of 

school, which doesn’t have much Federal or scholarship or grant 

funding available. Many of our students couldn’t pay for things 

such as rising room and board rates, rising student fees, and the 

extraordinarily high cost of college textbooks. 

I would also like to point out that, but for access to a credit card, 

those same students would not have a 19 percent interest rate to 

pay off, while 45 percent of our students don’t even have jobs while 

they are in college. 

But for access to a credit card, those students will not face higher 

credit payments for less money advanced to them than they would 

on most student loans, even the commercial student loans. 

I would like to take this opportunity to bring everyone’s attention 

to the fact that this isn’t just a credit card problem, this isn’t just 

a student problem. This is brought about very specifically because 

14 

students need to find more financing for education, and this financing is not available in the places we would like it to be available. 

So, this is a problem that must be faced on many fronts. But 

when we start talking specifically about credit cards, I would wonder where is the business model, what is a credit card CEO thinking, extending me a credit card when I tell him I have zero dollars 

annual income. Where are they anticipating the revenue to come 

from? I can only surmise that they anticipate the revenue to come 

from a very high interest rate spread across a very long period of 

time, which would be the period of time until which I graduate. 

And then, when I graduate, and I look at my career possibilities, 

I am going to wonder, well, I could go into social work, I could be 

a public high school teacher. I could start at $35,000 a year, and 

I could spend 15 years paying off my student loans and my credit 

card debt. Or, I could start in the corporate world at $50,000 a year 

and get this paid off, and get this monkey off my back as fast as 

possible. 

Thank you very much for your time. 

[The prepared statement of Mr. Thurman can be found on page 

86 of the appendix.] 

Chairwoman MALONEY. Thank you. Thank you for your testimony. 

Kenneth Clayton? 

STATEMENT OF KENNETH J. CLAYTON, MANAGING DIRECTOR 

AND GENERAL COUNSEL, ABA CARD POLICY COUNCIL, 

AMERICAN BANKERS ASSOCIATION 

Mr. CLAYTON. Chairwoman Maloney, Ranking Member Biggert, 

and members of the subcommittee, my name is Kenneth J. Clayton, senior vice president and general counsel of the American 

Bankers Association Card Policy Council, the group within the 

ABA that deals with card issues. 

We appreciate the opportunity to appear today to discuss college 

students’ rights, as adults, to obtain and use credit cards. We certainly acknowledge that not all students will manage cards in a responsible way, just as not all adults, in general, will manage debt 

without experiencing problems. 

Dealing with debt problems at any age can be stressful. And 

banks do their best to deal with each individual situation quickly 

to help resolve the problem at hand. However, anecdotes of student 

problems in the card area fail to paint the real picture that students, as a broader group, are, in fact, managing their credit obligations well. 

Importantly, we fear that policy decisions made on the basis of 

anecdotes will result in the creation of barriers to credit access that 

restrict the ability of young, responsible adults to manage their everyday lives. 

In my testimony today, I would like to make four points. First, 

credit cards provide invaluable benefits to the adult student population. They offer an ability to meet day-to-day needs, from buying 

books to purchasing airline tickets, in an enormously convenient 

and safe fashion. They provide an unparalleled safety net for emergencies. And they provide an entry point to the world of credit, allowing students to build financial skills and a credit history that 

15 

will one day permit them to buy a house, get a job, and otherwise 

participate productively in everyday life. 

Second, as a general matter, the bulk of college students handle 

their credit card experiences very responsibly. According to a 2008 

survey by Student Monitor, 65 percent of student card users pay 

their balances back in full, monthly. And for the 35 percent who 

carry balances, those balances average out at a mere $452. 

These numbers show, as do similar results from previous studies, 

that students handle credit as well as, and in some cases better 

than, the general adult population. They are also a reflection of the 

sound underwriting practices employed by banks, which typically 

involve imposing lower available credit limits, closer monitoring, 

and other safeguards on these accounts that result in limiting risk 

to both the student and the institution. 

Certainly there are examples of students who took on more debt 

than they were ultimately able to manage. But in the vast majority 

of cases, students are acting responsibly and meeting their obligations. 

Banks have a vested interest in ensuring that the students’ experience is a positive one, as the bank wants to build a productive, 

lifelong customer relationship that benefits both parties. 

Third, we believe that prescriptive policy decisions in this area 

may create barriers to credit that actually harm responsible young 

adults. Congress and several State legislatures have introduced 

legislation that would have the effect of limiting or preventing categories of college students from obtaining a credit card, whether 

through arbitrary limits on available credit or various prerequisites 

to credit card access. Today’s student population is very diverse, 

and such barriers may impede large numbers of responsible individuals from the enormous day-to-day and emergency benefits that 

cards have to offer. 

And, finally, we believe that the key to responsible card use lies 

not in artificial constraints, but in improvements in financial education. Most banks that issue credit cards are engaged in a wide 

variety of financial literacy and school education efforts, often in 

partnership with consumer groups. And many of these programs 

include training for young people using credit for the first time. 

ABA has cataloged on our Web site many of the efforts of our 

member institutions and groups to provide financial education to 

consumers, and I have provided a link to that site in my written 

testimony. Much needs to be done in this area, including improving 

educational efforts from grades K through 12. 

In conclusion, credit cards provide enormous value to young 

adults, the vast majority of whom have consistently shown that 

they can manage this product responsibly. We believe that continued efforts to improve financial education, rather than prescriptive 

policy decisions, are the best way to benefit this segment of the 

adult population. 

Thank you for considering our views, and I will be happy to respond to your questions. 

[The prepared statement of Mr. Clayton can be found on page 53 

of the appendix.] 

Chairwoman MALONEY. Thank you very much. 

16 

Erica Williams, policy and advocacy manager from Campus 

Progress. Thank you. 

STATEMENT OF ERICA L. WILLIAMS, POLICY AND ADVOCACY 

MANAGER, CAMPUS PROGRESS ACTION 

Ms. WILLIAMS. Thank you, Chairwoman Maloney, Ranking Member Biggert, and members of the subcommittee. I am Erica Williams, the policy and advocacy manager of Campus Progress Action. We are part of the Center for American Progress Action Fund. 

And, along with our sister organization, Campus Progress, we work 

very simply to help young people make their voices heard on issues 

that matter. 

First, let me thank you for the opportunity to testify on behalf 

of the young people on over 500 campuses and communities with 

whom we work. My testimony this afternoon will reinforce the 

points of several of our witnesses today, and will also seek to convince you of two things: First, that young people, especially students, are uniquely impacted by credit card debt and the abusive 

practices of credit card companies; and second, that this negative 

impact can be made better through an approach with legislative action at its center. 

Compared to previous generations, today’s young adults have not 

only been forced to borrow for their education, but also for their expenses while in college. As we heard earlier, according to Nellie 

Mae, the average undergraduate has over $2,000 in credit card 

debt. We hear hundreds of stories and heard the anecdotes referenced earlier. 

And we know that there are thousands of stories like that of 

Kali, a graduate of the University of Virginia. She shared with 

Campus Progress her experience with credit cards in college. When 

asked about the presence of companies on campus she said, ‘‘They 

were everywhere, like vultures, outside of my dorm, at football 

games, and in the quad. I took their teddy bears, free pizza, and 

complicated, convoluted sign-up forms.’’ 

By her junior year, Kali had opened three credit cards, all on 

campus, and had incurred nearly $3,000 in debt. Along with the 

giveaways and incentives, she took high fees, heavy interest rate 

burdens, and complex terms: three credit card practices that have 

been proven to heighten the risk of default. And default she did. 

As a senior, she graduated with over $5,000 in credit card debt. 

Now, here are the points that we are emphasizing today. Kali’s 

story is but one of many that we continue to hear from students, 

and it illustrates the key challenges that college students face with 

regard to credit cards. 

First, aggressive marketing and targeting by credit card companies on campus. They use a variety of techniques, from buying lists 

from schools and entering into exclusive marketing arrangements 

with universities, to marketing directly to students through the 

mail, over the phone, on bulletin boards, and through on-campus 

and near-campus tabling facilitated by so-called free gifts. 

The second challenge is high fees, heavy interest rates, and complex terms. But credit cards are notorious—and credit companies 

are notorious—for aggressive marketing and fine print. So why is 

the situation particularly damaging for students? Because young 

17 

people are in the most vital and vulnerable point of their financial 

lives. For college students, major borrowing from credit card companies is like visiting a Las Vegas casino. It’s a gamble, and the 

odds are against you. 

According to a 2004 study by Nellie Mae, 76 percent of undergraduates have credit cards. One fourth of the students surveyed 

in U.S. PIRG’s 2008 report said that they have paid a late fee, and 

15 percent have paid an over-the-limit fee. 

And to be clear, as we have heard earlier, this accumulated debt 

is not always the result of irresponsible spending and late night 

pizza runs. It is also the result of academic fees and textbooks. Research has shown that some students even use their credit cards 

to pay for their core tuition. 

Unfortunately, the result of this necessary use is often blemishes 

in the infancy of their credit history that will haunt them for years. 

Young adults saddled with credit debt upon graduation can pay up 

to $.25 of every dollar they earn servicing their debt: their credit 

cards, their student loans, and other loans. 

Entering a job market with stagnant incomes, this generation— 

my generation, Generation Debt—can ill afford to be financially 

compromised. 

This credit card occurred through aggressive campus marketing 

impacts our lives, our families, our communities, and our larger 

economy. 

So, now we know the scope of the problem. But what about the 

solution? Students that we work with on campuses every day will 

continue their campaigns on the State and campus level to not 

allow credit card marketing aggressively on campus, to keep colleges and universities from sharing students and alumni lists to 

credit card marketers, and to improve financial literacy among 

young adults. 

But Congress has a simple and significant role to play. We urge 

Congress to go the extra step and, with young people in mind, 

mandate a higher level of fairness in credit card terms in conditions by banning several of the most abusive, deceptive credit card 

practices, those that target students, and encourage greater transparency. 

Legislative action to protect against abuses by credit card companies is a fundamental issue of fairness and protection of America’s 

future, young Americans, when they are arguably in the most vulnerable and important phase of their financial lives. 

Thank you for the opportunity. 

[The prepared statement of Ms. Williams can be found on page 

89 of the appendix.] 

Chairwoman MALONEY. Thank you very much. 

And Mr. Neiser, director of strategic programs and alliances from 

the National Endowment for Financial Education. 

STATEMENT OF BRENT A. NEISER, DIRECTOR OF STRATEGIC 

PROGRAMS AND ALLIANCES, NATIONAL ENDOWMENT FOR 

FINANCIAL EDUCATION 

Mr. NEISER. It’s great to be here, Chairwoman Maloney, Ranking 

Member Biggert, and members of the committee. I want to extend, 

from the National Endowment for Financial Education, a personal 

18 

thanks to Ranking Member Biggert and Representative Hinojosa 

for leading the bipartisan financial literacy caucus. 

We are a 501(c)(3) nonprofit foundation based in the Denver 

area. For 20 years, our organization has funded and created a high 

school program that has trained over 5 million students. Credit 

card information is a key part of that; 800,000 students were 

trained last year. 

And in the college space, we have worked with the NCAA on 

sports and credit card issues, and created the first financial literacy 

program for the United Negro College Fund, among other organizations. 

Last year we launched Cashcourse.org, which I will explain in a 

few minutes, as a way to bring to campuses customized financial 

literacy information that colleges and universities can co-brand. 

More people drop out of college for financial reasons than academic performance, and this is disturbing. Albert Einstein called 

compound interest the 8th wonder of the world, and we are right 

at that point where it can work for you or against you. 

There is a role for credit in society. But the fog of overuse of 

credit, misuse of it, and ignorance of it can cloud young people, 

young Americans, of the opportunity that this body has created in 

so many areas of defined contribution plans and IRAs. They have 

a failure to launch in those areas. And it may delay their participation for their own retirement security for 10, 20, or even 30 years. 

We think there needs to be a balanced approach in financial education, as a part of that. 

I will provide suggestions in five areas very quickly for you: Financial education; disclosure; defaults; public awareness; and a culture of commitment. 

In the financial education area, Cashcourse.org, since its launch 

in January, is a non-commercial free service that we offer on an institutional subscription basis. One hundred and twenty-six colleges 

and universities and community colleges have signed up already. 

There are dozens on the waiting list, evaluating the program for 

adoption. Cash Course provides information about the world of 

work, managing credit, paying for college, and several other areas 

important to college life and financial basics. 

We are providing many enhancements as the program continues, 

such as seminar materials, marketing, and higher interactivity 

through Facebook. I am pleased to say that Brett Thurman on our 

panel, in the center, will be teaching at his campus from this program, using it as a supplement, because the University of Illinois 

Chicago is one of the pilot schools. 

In the area of disclosure, we believe point of purchase disclosure 

is very important. The Federal Reserve in 2009, as a result of the 

Bankruptcy Reform Act, is ready to launch its own unique program 

that we would have advocated as a legislative change if it was not 

already in place. We are very excited about it. 

Finally, Americans of all ages will see on their credit card statement, when the moment of truth is, when they pay that bill, if they 

pay the minimum payment, how long it is going to take to pay it 

off and how much more it will cost. We would ask this committee 

to monitor that progress, because there are two alternatives to 

19 

that, and to keep a sharp eye on how those results go. This is 

something we felt has been needed for many years. 

In the area of defaults, this is behavioral finance, behavioral economics. We all know that—regarding the area of auto enrollments, 

we have made tremendous progress in the area of 401(k) use. 

Americans need a nudge. They need to be pushed and gently 

tugged in the direction of their own self-interest. 

We see two areas that could improve again for all Americans. 

First, convenience checks. When people sign up for a credit card, 

they are not signing up for a check delivery service. We think that 

should be an opt-in program. People should have to say, ‘‘Yes, I 

want convenience checks,’’ that they should not be sent to them 

automatically from the banks. And there is an ID theft issue there 

as well. 

In the area of opt-outs, there is a way that people can stop most 

credit card solicitations now through an 800 number by the Federal 

Trade Commission. However, there is an exemption: affiliated sharing agreements. Americans should be allowed to opt into those if 

they want, or opt out of those, to have a full ban on credit card solicitations. 

In the area of public awareness, we have seen a lot of positive 

direction in the area of credit scores. People are more aware, even 

from the commercial sector, of what is at stake as they use credit. 

However, as Representative Hinojosa has called for, many times 

we need more information in this area. People need to know about 

the 8th wonder of the world, the time value of money, the good and 

the bad of it, and how it can be a balanced approach to live their 

financial dreams. Working with the Ad Council, we would encourage this committee to see that, for the first time in the financial 

literacy space, the financial basics of the compounding of interest 

be addressed. 

Finally, the culture of commitment. What do I mean by that? 

With Cashcourse.org, and its co-branded effect on campuses, no 

longer can a university president or business school dean say, ‘‘I 

don’t have information that is unbiased, non-commercial, or wellmaintained that I can use.’’ That is available through 

Cashcourse.org. And they should tap into the power of parents and 

other sectors of society to make this a financial literacy priority. 

Thank you. 

[The prepared statement of Mr. Neiser can be found on page 81 

of the appendix.] 

Chairwoman MALONEY. I thank all the panelists for their testimony. The Chair recognizes herself for 5 minutes. 

And first, I would like to ask Mr. Lawsky, what role do you believe legislation should play in addressing these problems? You 

mentioned one that you’re working on with Congress, but are there 

any other areas that you think are appropriate at this time? 

Mr. LAWSKY. Sure. I do think there are certainly some important 

areas for the legislature in this. Our investigation is continuing, 

and we are still, every day, finding practices that are troubling. 

What happened in our student loan investigation is as we discovered practices that we thought were fraudulent, misleading, deceptive, or problematic, we would work to find solutions to them 

20 

through our codes of conduct we were developing in our agreements 

with the banks and with the schools. 

The question then becomes we can only do so much, our jurisdiction is limited. We are in New York, and New York alone. Often, 

when we do settlements with a bank, for example, it does have 

extra territorial impacts. But at the end of the day, as we discover 

these practices and try to come up with solutions to them, any systemic solution to them really has to ultimately come from this body 

and the Senate. 

So, I don’t have particular areas I would identify, because we’re 

still in our investigation of finding them. But certainly with respect 

to the marketing practices we’re finding with respect to the exclusive agreements, and some of the provisions in those exclusive 

agreements, they are very ripe areas for legislative fixes. 

Chairwoman MALONEY. Well, could you publicly talk about what 

progress has been made by your office’s credit card marketing code 

of conduct? 

Mr. LAWSKY. We are making great progress with the code of conduct. It is not—it isn’t there yet, but again we are— 

Chairwoman MALONEY. Do you have any recommendations you 

can share with us now? 

Mr. LAWSKY. Not yet, unfortunately. I can say we are certainly 

focused on the exclusive arrangements and how to deal with them. 

We are focused also, I should say—and it’s in my written testimony—on how potentially exclusive arrangements aren’t necessarily always a bad thing. If an exclusive arrangement with a 

school is done right, and a school does the research required to find 

the credit card company that really is best for students, and really 

will offer something better for students than other companies are 

offering through that exclusive arrangement, then ultimately, the 

school—if you flip it around and you change the market incentives—the school can become a driver of good practices, and really 

a gatekeeper for good practices on campus. 

That’s what we tried to do with the student loan industry, and 

it’s something we’re working on carefully. And it’s tricky, but we’re 

working on it with our code of conduct on the credit cards. 

Chairwoman MALONEY. Thank you. 

Mr. LAWSKY. Thank you. 

Chairwoman MALONEY. Mr. Thurman, you mentioned that some 

students are graduating with a large amount of debt. What portion 

of college students would you estimate change their career plans 

after college due to credit card debt? 

Mr. THURMAN. Well, first, Madam Chairwoman, I would point 

out that anything I estimate would specifically just be my opinion. 

And I honestly would not feel comfortable giving you a number. 

But I can tell you, as a president of the student government, our 

student government is a 25-member assembly, and these are some 

of the best and brightest student leaders on our campus who are 

elected by every other undergraduate student on campus. And of 

those 25, I would say there is not a one who isn’t currently trying 

to decide, whether it be in the area of medicine or the area of law 

or politics, whether to go into, say, social work or working in a clinic, as opposed to opening a private practice or becoming a specified 

heart surgeon, so that there is more money involved. 

21 

And I know specifically at least two of my friends have already 

decided that law school is probably the way for them to go, as opposed to, say, going to work for Greenpeace, or something like that, 

following their undergraduate career. 

Chairwoman MALONEY. You mentioned many students were 

turning to credit cards to pay for their tuition and books and everyday living. Aren’t there other options like Pell Grants that— 

Mr. THURMAN. Yes. 

Chairwoman MALONEY. Could you elaborate? And then my time 

has expired. 

Mr. THURMAN. Yes, ma’am, I could. Very briefly, at our school 

alone, about one-third of our undergraduate students are Pell-eligible, so it’s a very focused-upon subject. But the Pell is a very intricate system. You may receive a scholarship of $500 that, if put into 

the system incorrectly, would make you Pell-ineligible. So, receiving a $500 scholarship would cost you $2,000 in grants. 

And, obviously, this is something for a different committee to 

hear, but also more and more students are going to summer school 

now, because it is very difficult to attain an undergraduate degree 

in 4 years. There are very little financing options available for 

summer school. 

As a matter of fact, if you want federally-subsidized loans for 

summer school, it has to come from unused loan amounts from the 

previous semester. So credit cards is where that can come into play 

to help a student accomplish that goal. 

Chairwoman MALONEY. The Chair recognizes Mrs. Biggert for 5 

minutes. 

Mrs. BIGGERT. Thank you, Madam Chairwoman. It was noted in 

the testimony that Mr. Hinojosa and I have worked a lot on financial literacy, and started out working with the Federal Government 

and the agencies, and really wanted to bring this to work with the 

private sector, too, to have some accommodation there. 

And Mr. Neiser brought up the Cashcourse, which I would like— 

I have to go online to see what’s happening there, because that is 

very exciting, that you are using that in so many schools. 

I just wondered what some of the other witnesses—Ms. 

Lindstrom, are you doing anything on the campus for financial literacy? I know you said in your testimony that financial literacy 

should be enhanced. But is there a way that your group, PIRG, can 

help to do that, since you are on—I don’t know how many campuses, but— 

Ms. LINDSTROM. Sure, yes. Yes, like I mentioned, this booklet 

helps students. It’s a consumer guide to credit cards, and we’re 

passing out thousands of those on campuses. 

I think what’s particularly exciting about our education effort is 

that it sort of penetrates all the other advertising that young people see, and educates them because it’s a tongue-in-cheek effort, 

where we’re looking like a credit card marketing effort, but we’re 

not. 

Mrs. BIGGERT. But is there any— 

Ms. LINDSTROM. So, that’s the main approach that we are taking 

to educate students through our effort. 

Mrs. BIGGERT. But there is nothing, as far as getting into course 

work with the universities or anything? 

22 

Ms. LINDSTROM. Certainly it comes up in our one-on-one conversations with administrators, when we are discussing, you know, 

principles for responsible credit card marketing, and some things 

that the campus can do to clean up the marketplace. 

But, you know, I think our bottom line is that to increase financial literacy alone just isn’t going to do it. The marketplace is unfair right now on campus, and the products are poisonous. So we 

have been focusing on those aspects. 

Mrs. BIGGERT. I would like to go to Mr. Clayton. Can you describe some of the efforts that issuers have made to educate students and young people about responsible credit card use? 

Mr. CLAYTON. Yes. Thank you, Mrs. Biggert, for asking. I think 

it’s very important, and it’s along the line of what Mr. Scott was 

talking about, too. 

This focus on marketing is kind of looking at it from the wrong 

end. You kind of have to flip it around and say, ‘‘Look, we have to 

empower people to make choices that work for them, not make the 

decisions for them, but help empower them to make those choices.’’ 

There is a whole range of activities that credit card companies, 

consumer groups, and others have been engaging in. Mr. Neiser 

has been talking about this, too, of getting out there and trying to 

educate people. But I would— 

Mrs. BIGGERT. How do you get out there? Are there any initiatives with the college administrators or— 

Mr. CLAYTON. Sure. 

Mrs. BIGGERT. Or governments to encourage greater financial literacy? 

Mr. CLAYTON. Absolutely. I think there are a number of examples of institutions working specifically with the universities. 

Remember, as was noted before, students in institutions and colleges and universities work together to figure out what the right 

way to present these things are. And institutions will only act 

within the bounds of what the college has basically set out as their 

criteria for marketing stuff. 

I know a number of institutions that actually teach courses on 

campus. There are always hand-outs, similar to what we’re talking 

about here, when people get applications for credit cards that basically try to educate people on what is going on. There are a host 

of resources online. 

The bottom line is we have to do more, but I also want to stress 

we have to do more even before college. I mean, there has to be 

a concerted effort on the part of the States, institutions, and others 

to kind of— 

Mrs. BIGGERT. I love the NFL and Visa, the football, financial 

football, the way they have done that online. 

Mr. Thurman, what do you see that you can do in the student 

government to encourage—and do you think that courses should be 

offered just on financial literacy, or mandated, or is this something 

that maybe—did you have a course in high school or anything, economics? 

Mr. THURMAN. No. No, I didn’t, Mrs. Biggert. Well, you asked if 

I think it should be mandated. I think you could get me in trouble 

with my dean. I think the problem— 

Mrs. BIGGERT. I don’t believe in mandates, but— 

23 

Mr. THURMAN. I think the key problem that comes up in educating students on financial literacy is who is going to do it, and 

who is going to be responsible for it? 

Mrs. BIGGERT. Okay. 

Mr. THURMAN. It does nothing for professors’ promotion and tenure track to add a course of financial literacy to their course burden, because it doesn’t affect their academic scope. If you are the 

dean of a college, how are you going to find the placement for it, 

in terms of space, the time for it in your programming, and also 

the pay for whomever is going to teach it. 

And these are things that possibly could be looked at on a Federal or more public level, some type of incentivized—or, as was 

mentioned before, talking about it in high school, talking about it 

before someone signs up for that first set of loans, before they go 

into their freshman year, their first credit card before they go into 

their freshman year. 

Mrs. BIGGERT. Well, I think that we have had the, you know, 

consumer education in high schools, but it doesn’t seem to have 

really covered this, maybe because I remember it a long time ago, 

before we had all those credit cards. 

But thank you. I yield back. 

Chairwoman MALONEY. Mr. Watt for 5 minutes. 

Mr. WATT. Thank you, Madam Chairwoman. And let me thank 

the Chair for convening this hearing on a topic that I think is very, 

very important for us to be dealing with. 

There are, obviously, advantages to students for having credit 

cards, but there are also some concerns that need to be addressed. 

And I want to zero in on three of those, and get Mr. Clayton’s reaction. 

The two concerns that I am most focused on are the aggressive 

marketing and the issuance of convenience checks to—I mean, it 

frustrates me if I get a convenience check that I didn’t request. It 

seems to be a waste of money for people to send them to me. I typically throw them in the trash can immediately. Or, actually, you 

need to shred them. I worry about throwing them in the trash can, 

because they have an account number on them already. 

So, I just want to know—and maybe you have already addressed 

this question—on the aggressive marketing side, you kind of 

turned the equation and said we shouldn’t focus on that, we should 

focus on literacy. I am a strong supporter of financial literacy, but 

there has to be some limitation on the aggressiveness of marketing 

on campuses, and elsewhere, but particularly to young people. Do 

you agree or disagree? 

Mr. CLAYTON. I think—well, a couple of things. Let’s put this in 

some factual context. 

Mr. WATT. I don’t want you to put it in context, I want you to 

tell me whether there are any points beyond which credit card companies shouldn’t go in aggressively marketing to young people. 

Then you can put it in context, if you want. I am not trying to 

cut you off, but I only have 5 minutes here. 

Mr. CLAYTON. These are adults, and we understand that. And we 

understand that we’re in a marketing society, and there are always 

going to be aggressive activities on the part to get noticed. The ultimate determiner— 

24 

Mr. WATT. But do you think it’s appropriate to—this example, 

where—to be giving a Subway coupon, and then getting there, and 

you’re not getting a sandwich, you’re getting a credit card. Do you 

think that is an appropriate practice? 

Mr. CLAYTON. I think it’s safe to say that Mr. Thurman didn’t 

get a credit card with that company. I mean, so I think that— 

Mr. WATT. That’s not the question I asked, though, Mr. Clayton. 

I appreciate you trying to avoid the question. I’m trying to find out 

what—whether you think there are some outer limits to the aggressiveness of credit card marketing to young people. 

Mr. CLAYTON. There are outer limits that the States and the 

Federal Government— 

Mr. WATT. And where do you think those outer limits are? 

Mr. CLAYTON. Well, that’s an arbitrary standard. I mean, it’s unfair and deceptive acts and practices standards that are in the laws 

and in the books, and people get to enforce that. 

So, I mean, I can’t tell you what line—what chapter and verse, 

this is okay and this isn’t, because that’s— 

Mr. WATT. Well, what about convenience checks? What is your 

opinion on that? 

Mr. CLAYTON. I am not really prepared to respond at this point, 

because we’re not really talking—that wasn’t necessarily in the 

context of the student credit card market, but I mean— 

Mr. WATT. Well, I didn’t put it in the discussion, somebody— 

Mr. NEISER. That was me, Mr. Watt. 

Mr. WATT. Mr. Neiser put it in the discussion. He said credit 

card companies are routinely issuing convenience checks. It is offensive to me to get a convenience check with my credit card. I use 

a credit card to charge things, not to borrow more money, which 

is what I can do with a convenience check. I can borrow money on 

my credit card. Do you think that is appropriate? 

Mr. CLAYTON. Well, for some people it is convenient, and some 

people use it for valid purposes, and that’s their judgement to 

make. 

As a practical matter, I think you talked about what you did 

with it was appropriate. If you don’t agree with it, you throw it out, 

you shred it. I mean, these are not hard and difficult standards for 

people— 

Mr. WATT. What happens if I throw it in a trash can and somebody else picks it up and uses it. Does the industry protect against 

that? I didn’t want it, in the first place. 

Mr. CLAYTON. Yypically, the industry does protect against people 

who are subject to fraud. I mean, as you can see, as you have seen 

in the credit card market generally— 

Mr. WATT. All right. My time has expired. Let me just ask Mr. 

Thurman one thing quickly, Madam Chairwoman. 

Are students aggressively taking action against college administrators who are issuing student lists? I mean, that seems to me— 

I guess if I were a credit card company, I would want the list of 

all the students. That is a college failing. What are we doing about 

that, if anything? 

Mr. THURMAN. Well, Mr. Watt, I would point out, first of all, that 

our university, the University of Illinois Chicago does not particiVerDate Aug 31 2005 14:51 Sep 23, 2008 Jkt 044190 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\44190.TXT TERRIE
25 

pate in that kind of practice. So our students don’t have a reason 

to take aggressive action against the administrator. 

But perhaps Ms. Lindstrom might be able to give you some information about what is happening on other campuses. 

Ms. LINDSTROM. Sure, yes. What we found is that in quite a few 

States, the public university system feels a compulsion, under disclosure of public records law, to have to give up all of the current 

information of students on campus to almost anybody who asks for 

it, for free or for a nominal fee. 

And so, ultimately—that’s just getting into a different area, but 

the practice actually is occurring in a set of States, and doesn’t 

occur in other States because of public records law. 

So, what we are—one of the suggestions that we made earlier is 

that students be allowed to opt in or opt out, know that is going 

to happen with their name, so that they have some control, again, 

over how they might be marketed to. But it is an interesting State 

law issue in quite a few places. 

Mr. WATT. Thank you, Madam Chairwoman. I yield back. 

Chairwoman MALONEY. Your time has expired. Mr. Castle? 

Mr. CASTLE. Thank you, Madam Chairwoman. Mr. Clayton, on 

page five of your testimony, there are several rather interesting 

statistics which are: 41 percent of college students have a credit 

card, which surprised me, I thought it would be higher; of the students with credit cards, about 65 percent pay their bills in full 

every month, which is higher than the general adult population; 

among the 35 percent who do not pay their balances in full every 

month, the average balance is $452, which is down 19 percent from 

2007; and 74 percent of monthly college spending is with cash and 

debit cards, only 7 percent is with credit cards. 

Mr. Neiser, on the first or second page of your written testimony, 

you indicate that the undergraduates of today leave campus with 

$19,000 in student loans. Student loans are a whole different issue. 

Mr. NEISER. Right. 

Mr. CASTLE. I happen to be on that committee as well, which is 

a whole problem, I might add. 

‘‘On top of that, half of all graduates in 2004 use credit cards for 

school expenses, carrying an average balance of $3,900.’’ There 

seems to me to be an inconsistency in those two sets of numbers. 

Maybe there is not. Maybe one or both of you could explain how 

you came up with those numbers, or what the consistencies or the 

inconsistencies are. 

Mr. CLAYTON. Well, I would be glad to jump in first, and then 

turn it over. As a practical matter, this is a study from Student 

Monitor from 2008, a survey of students and what their experience 

has been, and so that is where that number comes from. 

I would note, though, that the results are relatively consistent 

with prior studies. I was actually surprised at the 41 percent too, 

because I think it’s actually probably higher. But there have been 

other surveys that the GAO has done back in 2001, that Professors 

Barron and Staten have done in 2004, that yield consistent numbers in terms of the extent of debt that is out there, the amount 

of people who are essentially paying back in full every month. 

And so, I do think that, you know, it is—we feel comfortable saying to you that debts are within reasonable limits. And, frankly, it’s 

26 

also a product of the marketing. Credit card companies don’t give 

students open checks here. They don’t just sit there and say, ‘‘Take 

a $10,000 balance.’’ They start them off slow, they work them 

through it, and see if they’re capable of handling— 

Mr. CASTLE. Well, just to follow up, I mean, Mr. Neiser’s testimony indicates the average balance is $3,900 when they graduate. 

And the suggestion here is that the average balance is $452 for 

those students who don’t pay their balances in full every month, 

which I imagine is the ones with the higher debt, I guess. Those 

are dramatically different numbers. 

Mr. CLAYTON. It was—and I don’t know of the number Mr. 

Neiser was talking about—was the average balance of a graduating 

student, and there is a range of things—I will defer. 

Mr. NEISER. In our testimony, it is half of all graduates carried 

that debt, and it was—the average balance of those half was 

$3,900, according to the American Council of Education, June 2005. 

So it’s not all students. The half who carry that—have that average 

balance. 

Mr. CASTLE. Well, I understand that. But you are talking about 

35 percent here, and a half there, and you’re talking about vast differences. I think, somehow or another, we, as a committee, need to 

get those figures straightened out, because they don’t seem to be 

quite consistent with one another. 

Mr. Lawsky, let me ask you a question. You indicated when you 

testified that the agreements between the credit card companies 

and the schools, when revealed, will shock us. And then you went 

on to say that the colleges allow the credit card companies to get 

addresses, other information, access, etc. Is that the shocking information, or is there something you can’t testify to now, because of 

your legal position, that will be shocking that we don’t know about 

yet? 

Mr. LAWSKY. The latter. 

Mr. CASTLE. So there are things that will be revealed, hopefully, 

at some point later. Is that correct? 

Mr. LAWSKY. Yes, sir. 

Mr. CASTLE. To—perhaps, Mr. Lawsky, and perhaps to Mr. Clayton or anyone else who wants to answer it, with respect to what 

the colleges are doing, and with respect to the information about 

the different students and that which is given out to the credit card 

companies, what is the relationship between the credit card companies and the colleges? 

It almost sounds to me as if, in certain instances, the colleges 

have a responsibility here, in terms of their administration, as opposed to just the credit card companies and the students, in terms 

of what information is allowed to be shared. What is being done by 

the credit card companies with controlling that information, and 

what, if anything, are the college and university administrations 

doing to make sure that that may be brought under control, if that 

is a problem, if you know? 

Mr. LAWSKY. You’re asking about the flow of information from 

the universities about students to the companies? 

Mr. CASTLE. I’m talking about the flow of information from the 

colleges or universities to the credit card companies, which I beVerDate Aug 31 2005 14:51 Sep 23, 2008 Jkt 044190 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\44190.TXT TERRIE
27 

lieve you testified was a problem. Is that issue being addressed, either by the credit card companies or by the colleges themselves? 

Mr. LAWSKY. I’m not sure I—I don’t think I know the answer to 

that, and maybe Mr. Clayton does. I can tell you that the—there 

is, in the relationship between the universities and the credit card 

companies, there is clearly a money flow from the credit card companies to the universities in exchange, at least in part, for student 

data: e-mail addresses, home addresses, school addresses, and telephone numbers, to allow the marketing. 

The information I have seen indicates that is just a financial 

give-and-take. I didn’t see protections built in there. Maybe they 

are aware, and I am not aware of them. But to my knowledge, it 

is simply an economic transaction. 

Mr. CASTLE. Well, I understand what you have testified. My 

question is, is that a problem? Is anyone doing anything about it, 

if it is a problem? 

Mr. CLAYTON. Well, I think that Mr. Lawsky referenced it earlier, that colleges can act as a gatekeeper, and they get to control 

this relationship, and they have to determine what is in the best 

interest of their students. 

I am not privy to the specific agreements, in terms of what is 

shared by both sides, but you really want to turn to the universities, the ones that are getting into endorsing these products. And 

if they don’t think something is appropriate, just like I understand 

they did at the University of Illinois, they say no. And that’s the 

gatekeeper. 

Mr. CASTLE. Thank you. 

Chairwoman MALONEY. Will the gentleman— 

Mr. CASTLE. Thank you, Madam Chairwoman. 

Chairwoman MALONEY. In response to one of your questions on 

the statistics, the Nellie Mae survey for 2007 will come out in July, 

and the Fed survey for 2008 will come out in August. 

The Chair recognizes Mr. Clay for 5 minutes. 

Mr. CLAY. Thank you so much, Madam Chairwoman. Mr. Clayton, in the beginning of your testimony, you state that not all students will manage debt in a responsible way, just as not adults in 

general will manage debt without experiencing problems. 

Aside from being a vague statement, you fail to recognize that 

most adults are receiving an income each month, whereas many 

college students who, yes, are considered legal adults, are unemployed, or have low-paying part-time jobs. 

As you are supporting the marketing of credit cards to college 

students, how do you suggest we address the issue that the majority of students do not have the money to pay off their debt on time, 

and therefore, are finding themselves in immense amounts of debt 

upon graduation? Oftentimes the offering of credit cards to students is a lure to indebtedness, as they view credit cards as money 

and use them as such. 

When you know that this is the end result, it seems to be pretty 

predatory in nature when the offer is made to these individuals— 

Mr. CLAYTON. Let me make sure—there seems to be some discrepancy in the numbers, and we recognize that. And to us, it says 

that more needs to be done to figure out what is really going on 

out there. 

28 

I mean, we take the perspective, from the numbers we have seen, 

that this predatory lending that you’re talking about doesn’t really 

exist, and that, in fact, a good portion of students are acting in a 

responsible way in handling that credit, and it is opening doors to 

them. 

Remember, the thing we haven’t really talked about is how this 

has helped them build a credit record that helps them get a car 

loan or a home loan and be productive members of society, as they 

get out of college. But we’re not seeing the same message. 

We are seeing—again, we operate in the college space with much 

more confined underwriting. We limit the amount of credit that a 

student can take down, as a practical matter, and the results, from 

our perspective, speak for themselves. 

I would note also there has been a lot of discussion about this 

massive marketing. This is a—we are—obviously, there is a lot of 

information flow in this society, and there is no way to really necessarily contain that information flow. It’s going to come from various places. 

But one of the things that people are talking to us about is how 

little or few students actually sign up for these on-campus marketing techniques. Now, they obviously view it as productive to do, 

to get their names out there. And oftentimes, frankly, they market 

at sporting events because they’re really shooting at the alumni, 

and the friends of alumni, not necessarily the students. 

But just one aside, the Student Monitor came back and said that 

only 2 percent of credit cards that students actually obtain is 

through these campus marketing activities. 

So, I guess what I am trying to say is we are not really starting 

with the same premise, that these aren’t necessarily predatory, 

that they are opportunities. And I think others have recognized 

this is a real value to people who need money. To the extent that 

there are broader societal issues brought to bear here, such as the 

impact of student loans, that’s clearly a case. 

I would say that, just as an aside, when we looked at the Student 

Monitor study and what they talked about, the amount of credit 

card debt versus the amount of student loans, student credit card 

debt represents less than one quarter of one percent of overall student loans, in terms of the debt that that is— 

Mr. CLAY. All right, thank you for the response. Ms. Williams, 

in your testimony you mentioned several times how young adults 

are more frequently using their credit cards to pay for basic school 

expenses, such as tuition and books, citing research done by U.S. 

PIRG. 

If credit cards are issued to students who are inclined to pay for 

school expenses in this manner, then do you agree that, by using 

the credit card, students are paying almost exponentially more interest than by using student loans? Do you agree? 

Ms. WILLIAMS. The question is that do I agree that, by using the 

credit cards to purchase— 

Mr. CLAY. Students are paying exponentially more interest, more 

in interest rates? 

Ms. WILLIAMS. Absolutely. 

Mr. CLAY. Okay. 

29 

Ms. WILLIAMS. I mean, the interest rates for students are considerably higher because of their thin credit history. So if you look at 

that comparatively to student loans, yes, I do agree with that statement. 

Mr. CLAY. Is the ease of obtaining credit card financing creating 

greater debt for these prospective professionals? 

Ms. WILLIAMS. It is, and I think that’s getting to the heart of 

what some other witnesses—Mr. Thurman and Ms. Lindstrom—are 

suggesting. It is not a matter of denying access to the cards. I 

wouldn’t even necessarily say it is the ease with which they have 

access. But, again, it’s the predatory nature of this kind of aggressive marketing on campus. 

And we are talking about, you know, young adults. They are, indeed, adults. But this is, in a way, the childhood of their financial 

life. 

Mr. CLAY. Sure. And shouldn’t we be about creating less debt 

and less hurdles for young people who are coming out of college? 

Ms. WILLIAMS. Absolutely. I mean, the impacts, again, are not 

just on the students themselves, but on their lives, on their families. We mentioned that the boomerang effect of young Americans 

having to move back home, we mentioned—Mr. Thurman mentioned some of the impacts on the economy and job choice. 

I think it is an overall broader societal issue than just simply incubated on that campus. 

Mr. CLAY. Thank you so much for your response. I yield back. 

Chairwoman MALONEY. Thank you. The Chair recognizes Ruben 

Hinojosa, chair of the Higher Education Subcommittee, which also 

is reviewing this challenge, and co-chair of the financial literacy 

caucus. 

Mr. HINOJOSA. Thank you very much, Madam Chairwoman. I 

want to thank Chairwoman Maloney, and I want to thank Ranking 

Member Judy Biggert. I thank them for holding this extremely important hearing today on a subject that is very near and dear to 

my heart, and that is ensuring that higher education is available 

and affordable to as many students as possible. 

Chairwoman Maloney, I am proud to be a cosponsor of your legislation, H.R. 5422, entitled, ‘‘The Credit Cardholders’ Bill of Rights 

Act,’’ and I was more than willing to cosign the letter to Federal 

regulators in support of the proposed rule to ban unfair or deceptive credit card practices. 

As chairman of the Subcommittee on Higher Education, I am 

very concerned that more than 100,000 students each year do not 

enroll in higher education institutions because of financial barriers. 

I am equally concerned about the amount of debt that students are 

incurring while attending institutions of higher education. And I 

have been working diligently to make college more affordable and 

ensure that students graduate with the least amount of debt possible, including credit card debt. 

At this point, Madam Chairwoman, I wish to ask for unanimous 

consent to submit for the record three documents that I have with 

me. The first one is my complete statement, which is much longer 

than this condensed statement that I have just made. 

Secondly, I would like to ask unanimous consent that a report by 

U.S. PIRG, entitled, ‘‘The Campus Credit Card Trap,’’ and that acVerDate Aug 31 2005 14:51 Sep 23, 2008 Jkt 044190 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\44190.TXT TERRIE
30 

ronym stands for a survey of college students and credit card marketing by the U.S. Public Interest Research Group Education Fund, 

and this report is dated March 2008. 

And lastly, I would like to ask unanimous consent that the report 

that was released, a press release from House Education and Labor 

Committee Chairman George Miller on the FTC’s new consumer 

guide on student lenders’ deceptive marketing practices, and a copy 

of that guide, entitled, ‘‘FTC Facts for Consumers: Student Loans 

and Avoiding Deceptive Offers.’’ 

Chairwoman MALONEY. Without objection, it is so ordered. 

Mr. HINOJOSA. Thank you. 

Chairwoman Maloney, I again applaud you for your legislation 

and letter—and your dedication to this cause. 

And I wish to take this opportunity, since I still have part of my 

5 minutes, to ask some questions. I apologize that I am a little bit 

late and didn’t get to hear the witnesses make their presentations, 

because I was at an event where I introduced some very important 

people, including Senator Clinton, and that made me a bit late. 

I know that this young man, as one of the witnesses, was testifying about his experiences on the college campus in Illinois, and 

I was delighted, because that opened, then, the door for me to talk 

about the need for the financial literacy education programs that 

are available, and mandated in some States like my own State of 

Texas. And that, of course, would help them be prepared to go to 

college and better handle debt as they start their college education. 

Can you tell me if there are any other States that are requiring 

this? Maybe students who came to your campus that had already 

taken those courses back in their sending State? 

Mr. THURMAN. Sir, on the level of States requiring that, I don’t 

have that information. Perhaps one of the other panelists might. 

My area of expertise is very much limited to the University of Illinois at Chicago. I do know that we have started developing a program for our students, but in terms of State requirements, I don’t 

have that information. 

Mr. HINOJOSA. Well, the strength of the student body that you 

represent, possibly you all could start a movement throughout the 

Nation. There are several States, according to a note that was just 

given to me by staff, that already include a class on financial literacy as part of the core curriculum. Texas is one such State. 

And possibly that might help Judy Biggert, my friend from Illinois, who is the co-chair of a caucus that is working with about 87 

other Members to try to get this program out into the country, and 

particularly to students who are looking for accessibility and affordability to higher education. 

But I think I will then go on to ask another gentleman who is 

on this panel, and I will ask one question, Madam Chairwoman, of 

Kenneth Clayton, managing director of the ABA Card Policy Council. 

I have had several representatives from organizations like yours 

coming to visit my office and talk to not only me, but my staff, trying to tell me that they have mended their ways and that they 

have fixed things up to where they are no longer charging for 

things that I was upset about, and that is that if they are late in 

making their payment, that you can easily take the rate at which 

31 

they started out using their card, and bump it up to as high as 28 

percent plus late payment fees and other fees that just make it almost impossible for them to ever get out of debt. 

What is your organization and your members doing to discontinue that? 

Mr. CLAYTON. I think, as you have seen, there are choices in the 

marketplace where various participants have either decided not to 

make these products—these type of rules applicable to their products or not. 

I mean, so consumers can say, ‘‘I don’t want this, and I am going 

to go get this card,’’ or not. They are very—there are a number of 

institutions that market very simple-termed cards, and I won’t—I 

can’t get into a marketing campaign for them here, but the bottom 

line is they have various products out there for people that want 

to have these things limited. 

I think the other thing I want to stress here is, as you know, the 

Federal Reserve has moved in this space in a dramatic way, and 

I think most people have recognized that it is a very broad proposal 

that they put out to address some of the concerns that have been 

raised in this committee to the credit of Ms. Maloney and others, 

and they’re looking very seriously at it. 

We have some concerns with those proposals, because we think 

they have the net effect of driving up costs to a wide variety of people, and end up unfairly having people that pose higher risk actually be subsidized by those that don’t pose risk at all. 

But that being said, there is going to be a lot of addressing of 

these issues that people are talking about. The Fed will act and it 

will apply a standard that everyone is going to have to— 

Mr. HINOJOSA. With all due respect to you with your title of 

managing director, I will say that I receive two to three applications for credit cards. And to this day, in the last 10 years, I have 

not received one from those companies that have simple, easy credit terms like you just described. All of them have little fine print 

at the bottom, that if I’m late, if I’m this, that and the other, I will 

get penalized, I will have late payment fees. 

So, evidently Congress is going to have to step in and just make 

it universal, so that all of the companies will have to change— 

Chairwoman MALONEY. I thank the gentleman for his comments, 

and your time has expired. 

Mr. HINOJOSA. Thank you, Madam Chairwoman. 

Chairwoman MALONEY. You made many important points. Congressman Scott for 5 minutes. 

Mr. SCOTT. Thank you very much, Madam Chairwoman. It is a 

very good hearing. 

Let’s talk very specifically about what we can do, as a Congress, 

what kind of legislation we can put forward. 

What we have here is a captive audience of young students on 

a campus. They are at a very vulnerable part of their lives. The 

testimony is very effective. Let’s start with the number one question. 

Number one, would you favor legislation that would ban this activity? There is documented evidence that there is agreement between many of these universities and credit card companies, of 

which these universities are paid huge sums of money for the right 

32 

to market their credit cards to their students. Would you favor legislation to ban that? 

[No response] 

Mr. SCOTT. Any—hurry up, my time is ticking, and I have quite 

a few more—I am trying to get at some issues here. I mean, if you 

want us to do something, this is something we can do. Is this something we should do? 

Ms. LINDSTROM. Sure. Yes. I think I am excited to see what the 

attorney general in New York—what their investigation turns up, 

in terms of the relationships. And I do think there should be accountability, once we know what actual relationship exists. 

I think right now some of the things that we’re particularly interested in, in terms of legislation to clean up the campus marketplace are the same underwriting standards for students as the rest 

of consumers in society. So, as we mentioned earlier, there are lax 

standards. And, as a result, students don’t need to meet the same 

criteria, and they get— 

Mr. SCOTT. Well, so let me just ask this, because my chairwoman 

is going to put the hammer down on me. 

I just want to know is it okay—I mean, is it fine—that these card 

companies can come pay these universities money to have the right 

to come in and market their product to their kids? Because this is 

an industry. They are already doing it at a tune of $1 billion a 

year. I mean, we heard a lot of complaints here. Once they get the 

right to get on campus to do it, this is capitalism. They paid the 

right to have access to those kids. 

Ms. LINDSTROM. Right. 

Mr. SCOTT. Do we stop that at the gate? Do we stop the folks at 

the gate and don’t let them get on the campus? That’s what I am 

asking. 

Mr. THURMAN. Mr. Scott, if I may? I would suggest the answer 

to that is yes, and I would suggest that based upon a couple of simple premises. 

First, in some university environments, especially in rural campus environments, what you have is an extraordinarily captive audience. And if the university is going to sign some type of exclusivity agreement—and I do believe that’s what we’re talking 

about—that’s only going to allow a particular company access to 

those students, we’re not just talking about those students just 

drinking Coke instead of Pepsi. We are talking about those students having access to only one set of terms of interest rates, of 

payback terms, of late fees, of overdraft fees. And for that simple 

reason, for starters, before we get into anything else, I would suggest that that is a reason alone to ban exclusivity agreements on 

campus. 

Mr. CLAYTON. Mr. Scott, I guess we would have to oppose it. I 

mean, we really do think that, in many instances, schools—and I 

think Mr. Lawsky actually talked about it—schools actually can get 

benefit from this to benefit the students that they’re actually serving. 

I would also note that whether you’re in city areas or rural areas, 

we are in a very open-ended communication society. You can get 

access to information on the Internet, wherever you’re sitting. So 

you can get it from your local bank, you can get it from other 

33 

places. Regardless of what arrangements a college makes with an 

institution, it’s not the exclusive way to gain access to students. 

Mr. SCOTT. But I think the point we would make is you listen 

to the young people and what they’re saying—and there is some 

victimization that is truly going on here with the credit card companies—combined with the lack of the literacy in education, they 

are just sitting there. 

And the other thing is, okay, once we get them on campus—and 

so we have a tie here, we have a draw here, 50/50, some say they 

should—but if they get on campus, and then the next thing they’re 

giving these gifts, and the data says that three-fourths of all students that come and get the gift fill out the application. There is 

a real strategy here. You feel a role of responsibility. You’re going 

to take the teddy bear, okay, ‘‘You take my teddy bear, you have 

to fill out the application.’’ You fill out the application, it’s gone. 

So, should we pass legislation to ban giving of gifts? 

Mr. CLAYTON. Let me just jump in for a second. First of all, when 

we talk to institutions, they basically tell us that the primary vehicle for them signing up people with card agreements is when those 

people come into the bank branches and open up savings and 

checking accounts. 

We think it is overstated that these gifts are necessarily driving 

consumers to take on a great deal of debt. I mean, you know, I 

don’t think that gives enough credit—no pun intended—to the students and the— 

Mr. SCOTT. Mr. Clayton, the PIRG survey I am reading from 

here reported that three of four students—three out of every four 

students—reported stopping at tables to consider or apply for credit 

cards when they were offered gifts. 

Now, there is a direct correlation here, and we’re trying to get 

at that. If we do let you on the campuses, then the issue becomes 

you are giving these gifts. The kids there feel an obligation to fill 

out the form. Once they do that, they are hooked into it. So it is 

a system that is going on here. 

Universities need to wake up. I think they have a responsibility 

here. If they are signing these exclusive agreements, they are giving carte blanche to turn their kids loose to people when they come 

in. And this is a business. This is the American way. They are 

going to be aggressive with their tactics. Once they pay the university, the university turns them loose on the kids. Then they come 

and they give the kids gifts. Then they’re paying the kids. I mean, 

this is a little system here, and I am just simply saying we need 

to look, and take a look at some of the deceptive practices. 

My final point is that I wanted to get at is—because my time is 

up here—would you support legislation for parental—would you 

support Federal legislation that requires that, before the kid can 

get the credit card, that he has to have a cosign with his parent 

or a guardian? 

Chairwoman MALONEY. Answer quickly, because the gentleman’s 

time has expired. 

Ms. LINDSTROM. We would support students being subject to the 

same underwriting standards. So that means that if the student 

has no income or other assets, then yes, I think maybe considering 

the formation or encouraging a starter card for students who have 

34 

no income, or allowing them to get a card with a cosigner makes 

sense. 

But I do think that students should be treated like everybody 

else. And the vast majority of students do have an income, and do 

have a job, and should be able to get credit and have a credit 

check, just like everybody else, relative to the credit that they qualify for. 

Chairwoman MALONEY. Thank you. 

Mr. SCOTT. Thank you. 

Chairwoman MALONEY. The gentleman’s time has expired. And 

Congressman Cleaver— 

Mr. CLEAVER. Thank you, Madam Chairwoman. I want to follow 

with Mr. Scott’s questions. 

Mr. Clayton, do you disagree that some of the practices that we 

are discussing here today are very similar to the practices that led 

to the current subprime crisis with the 1.3 foreclosures as of today, 

a predicted 6.5 in the next 5 years? Do you believe that there are 

any parallels? 

Mr. CLAYTON. I do not. 

Mr. CLEAVER. Okay. So, is there a parallel between giving people 

credit for homes that they can’t pay for, and giving people credit 

cards that they can’t pay for? Do they sound similar? 

Mr. CLAYTON. No, I don’t agree with that, either, because what 

we’re seeing statistically is that they can pay for it. 

Mr. CLEAVER. That’s what the people said when they gave the 

people the subprime loans, almost the exact words. That’s the same 

logic they use. And we are having 20,000 foreclosures a week. 

So you think such legislation is fake? 

Mr. CLAYTON. I’m sorry? 

Mr. CLEAVER. Fake, f-a-k-e. 

Mr. CLAYTON. And that is fake in what respect? I mean, the— 

Mr. CLEAVER. On page 7, you said that this is artificial, and a 

synonym for artificial is fake, bogus. 

Mr. CLAYTON. We think that artificial constraints will have the 

effect of limiting the ability of very responsible adults to get access 

to credit that they use for very valid reasons. 

Mr. CLEAVER. Okay, so you believe that if we required that students who don’t have a job receive a credit card, as Ms. Lindstrom 

has said, in the same way that other individuals are marketed— 

in other words, if they don’t have credit, they don’t get a credit 

card, and if they want a credit card, someone must sign for them, 

just like a car, if you don’t have a job and you want a car, your 

parents have to cosign for you. 

Mr. CLAYTON. Not everybody has a parent who is either willing 

or able to sign for it. And so you’re ending up taking those people 

out of the marketplace. 

Mr. CLEAVER. Well— 

Mr. CLAYTON. That’s a judgement that you make, and I understand that, and that’s certainly the prerogative of the Congress. 

Mr. CLEAVER. Yes, the legislation says a parent or an adult, anyone who is willing to cosign. 

Mr. CLAYTON. But there may be adults who don’t have that— 

Mr. CLEAVER. That is absolutely true. And that is why we have 

the subprime crisis, because people were getting things, and they 

35 

had no back-up, they had insufficient income. The figure that has 

been used about the number, the debt, comes from the Nellie Mae 

Corporation study. And if people are leaving college with almost 

$3,000 worth of debt and no job, doesn’t that sound like we have 

a problem? 

Mr. CLAYTON. The numbers are nowhere near what you’re talking about in the subprime crisis, as you know. And the Nellie— 

Mr. CLEAVER. I beg your pardon? 

Mr. CLAYTON. The actual dollar numbers that you’re talking 

about in the credit card space is much less than what you’re talking about in the— 

Mr. CLEAVER. So it’s not—we shouldn’t be concerned if people 

don’t lose homes, they just start out in their adult life broke. 

Mr. CLAYTON. We’re not saying you shouldn’t be concerned. We 

should be concerned. We are saying that some of the remedies will 

create greater problems than the problems that actually exist. 

Mr. CLEAVER. Tell me the problem created by requiring a cosigner. 

Mr. CLAYTON. All I can do is respond from the perspective of 

someone who may not have a consignor to make that. They will not 

have the benefit of a card to take care of a car that breaks down, 

or to buy books. 

It’s not that we’re saying that credit cards should be your first 

choice to buy—to use to purchase books. That’s a deeper issue of 

whether the funds are available to make those purchases. 

Mr. CLEAVER. Oh, you—I mean, your job is just to give them the 

credit card. 

Mr. CLAYTON. We find that our job is to allow consumers to benefit and actually get— 

Mr. CLEAVER. So you’re doing them a favor. I mean, you’re providing a service. 

Mr. CLAYTON. Lots of people would tell you that we are. 

Mr. CLEAVER. Now, you talked about the Federal Reserve. And 

they are, in fact, working on regulations. But we do—we both—you 

and I will agree that is not a law. 

Mr. CLAYTON. That is correct. But it is a basis of a law that Congress passed previously. 

Mr. CLEAVER. You would prefer to have the Fed draft regulations 

than have us put a law in place? 

Mr. CLAYTON. Laws end up imposing very restrictive solutions on 

things that— 

Mr. CLEAVER. That’s the point of laws. We put a stop sign, we 

want to restrict you from driving through. That is what laws do. 

Mr. CLAYTON. I understand. And it is your prerogative. 

Mr. CLEAVER. We are trying to keep people from running people 

into debt, young people getting a start. I mean, this Nation is –.6 

in savings, –.6. Asian nations are almost 20 percent savings. 

They’re trying to stop people from saving so much of their income 

in Japan. 

The –.6 means we’re going the other way. We ought to be trying 

to work with laws and whatever else we can do to prevent this 

from becoming another crisis. Sir? 

Mr. CLAYTON. The— 

36 

Mr. CLEAVER. I disagree. Let me ask you, Ms. Lindstrom, do you 

think most of the students on campus understand universal default? 

Ms. LINDSTROM. No, I don’t think they understand— 

Chairwoman MALONEY. The gentleman’s time has expired, and I 

thank him for his questioning. 

The Chair recognizes Walter Jones, from the great State of North 

Carolina. 

Mr. JONES. Thank you, Madam Chairwoman, and we are so 

proud of you, because you were born in North Carolina. So we 

thank you for remembering your roots by welcoming me. 

I want to thank you. I don’t know if anyone—I had to be out for 

a few minutes—has anybody mentioned the parents who have to 

pay some of these charges in your testimony? 

Mr. CLEAVER. I tried. 

Mr. JONES. Oh, you did? Okay. 

Mr. CLEAVER. I tried. 

Mr. JONES. All right. Well, I apologize, because I missed your— 

the reason I ask that, and I do know my colleague has been one 

of those parents, but this is one of the issues that I have had—I’m 

not going to exaggerate, but I will say in 14 years, I have had 

many concerns and complaints from parents. 

And you have touched, in your testimony—and I thank each and 

every one of you for your testimony—you have touched on the fact 

that too many times these universities are being paid to send a 

person’s name so they can send a card to that individual. I think 

that’s going to be addressed, I hope, in this legislation, or will be 

addressed. I think it is wrong. Not only do I think it is wrong for 

the student, but I think it is terribly wrong for the parent if that 

student is 18, 19, or 20 years of age, or maybe even older. 

Maybe, Ms. Lindstrom, you might be the one to answer this 

question. I had the staff very kindly help me with profits by the 

credit cards. I want to read this, and then I will zero in on my 

question. 

‘‘The credit card industry is the most profitable one in the United 

States, with annual earnings in the $30 billion range. Many people 

might be surprised to learn that a single credit card issuer, MBNA, 

earned 1.5 times more profit than McDonald’s in 2004. Citibank, 

another major credit card issuer, earns more profit than both 

Microsoft and Wal-Mart.’’ 

How much of the $30 billion, what percentage in—would you say 

is targeted and percentage comes from students who use their credit card? 

Ms. LINDSTROM. Yes, I actually don’t know the answer to that 

question. I will have to get back to you on that. I don’t know the 

breakdown of the profit— 

Mr. JONES. How about Mr. Clayton? 

Ms. LINDSTROM. —and what sector it comes from. 

Mr. CLAYTON. I don’t have that information. I would also note 

that a lot of card companies actually have students that get their 

cards that are not marketed to students, they’re just part of general marketing efforts. So they may not be able to identify if they’re 

students. 

37 

But I suspect it’s still a relatively small number, as a percentage 

of the overall profit. 

Mr. JONES. Would anyone want to guess? Is it 1 percent or 2 percent? 

I—just to see this—and I realize that when you are zeroing in 

on these young people, the hope is that they will be a user of that 

card for years to come. I realize it doesn’t just stop when they graduate from college. But I wonder if there is anyone that—to me, 

you’re putting a tremendous amount of money into a marketing effort, and you are zeroing in, and I realize that’s not just for the 

short term, it’s for the long term. 

Would anybody be able to respond to the point I am trying to make, or the amount of money that you are going to—of the $30 

billion, you can’t tell me that 1 percent of that $30 billion—and I 

understand if you can’t—is coming from the college effort? 

Ms. LINDSTROM. Well, yes. I mean, I would respond with the fact 

that what we’re talking about here is a captive market and a highly desirable market that the industry is clearly going after in a 

very concerted way. They want to become the very first card ever 

in somebody’s wallet, because, you know, I guess marketing studies 

have shown that folks develop some kind of sympathy or just get 

used to that particular card. 

And so, you’re more likely to get a customer for life if you can 

be the very first card that gets into somebody’s wallet. So, I do 

think what you’re talking about is correct. The investment in getting at students is all about the long-term pay-off, regardless of 

whether or not, you know, there is a—one percent of the overall 

profit margin comes from the particular student consumer right 

now. I think the push to get into the wallet is what creates the 

dirty marketplace, as it were, that exists on the college campuses 

for students. 

Mr. JONES. And the student is charged the same percentages, 

late fees, just like a person 30 years old or 40 years old? I mean, 

there is no break for the student? 

Ms. LINDSTROM. No. I mean, again, we only have anecdotal information. But we do know from our student constituency that students do encounter worse terms and conditions than it seems like 

their parents would, for instance. 

So, a 9 percent teaser rate that you get, an interest rate for 6 

months, that then jumps up to 29 percent. Or, you were late on a 

payment, and then you—or something along those lines. We have 

actually gotten reports, students reporting in, that they are paying 

an interest rate of 38 or 39 percent. So, again, this is all anecdotal. 

We don’t have any real information to back up that, but we have 

a sense that the terms and conditions are particularly filled with 

the ‘‘gotcha fees’’ in a way that is not necessarily the same case for 

the broader consumer marketplace. 

Mr. JONES. Thank you. Thank you, Madam Chairwoman. 

Chairwoman MALONEY. Thank you. In the spirit of bipartisanship, there will be two additional questions, one from Mr. Scott and 

one by Mrs. Biggert. 

And I am told we will be called for a vote shortly. So, Mr. Scott? 

Mr. SCOTT. Yes. Thank you very much. Just very quickly—and 

I appreciate the generosity of our chairwoman—because I think 

38 

that you made a statement there that we treat these the same as 

we would adults. 

But that is not fair. The adult has a job. They have a house. 

They have started in life, they are there. These are young people, 

just starting out. There ought to be more of a nurturing and a caring as you’re starting them out on this journey. 

I firmly believe we have to do something about turning over 

these exclusive rights at these universities, who are getting billions 

of dollars to make available these students. We have to do something about the enticements being used to attract the vulnerable 

student. This is a business that is not just with a product. They 

make their money—credit cards make their money on late fees, 

penalty fees, interest rates, and compounding interest rates. 

My question, just to give an example, is that even right now, why 

could we not—would it be possible, would you support us making 

sure that, even as we move forward, that we ensure that the full 

amount of a payment is listed in the payment box, as opposed to, 

say, the small minimum payment that is there? If we do that, I 

think it would help encourage the student to pay off more of his 

debt, or pay in full each month, if we show the full amount that 

is there. 

My point is, by only making minimum payments, let’s say, on a $5,000 balance, that can lead a debt to a debt that would take, just 

that small amount, 7 to 15 years to pay off. These just are small 

things that I think we need to do. And I fall down on the side that 

we need to do and go the extra mile for these students. They are 

not the same as adults out here. And we need to do something 

about the university. 

But my point is, is that possible for us to do, just set one simple 

thing so that we could cut down on the amount by putting the full 

payment in there? Yes, sir? 

Mr. NEISER. Mr. Scott, any time that Americans can be faced 

with the brutal facts of what they’re spending, and the potential 

consequences of not paying things off, is an educational and a 

teachable moment. And the same thing has to happen on the savings and investment side. It’s disclosure, it’s what economists say 

is—it’s the moment of truth. And we can’t have information in the 

shadows to cause people to find, 10 year later, that they made a 

mistake. 

And again, as my testimony indicates, the Federal Reserve regulations coming forth in 2009 to disclose more of what that hard, 

brutal truth is to Americans is encouraging. But it needs monitoring. 

Mr. SCOTT. Okay. So you agree with that? 

Mr. NEISER. Yes. 

Mr. SCOTT. Good. 

Mr. NEISER. In general concept. 

Mr. SCOTT. Thank you. Now, the one other point that I wanted 

to ask was that—what if we had a way in which the—am I okay? 

Chairwoman MALONEY. Sure. 

Mr. SCOTT. All right, thank you. 

Chairwoman MALONEY. This is the last question. 

Mr. SCOTT. Last question. See, because we need to help the students here. 

39 

If we require a monitoring, if you don’t want to go with my plan 

for the cosigner of the parent, because you have to have the parents in here, they don’t know. Kids are up there, it’s free money. 

I mean, we’re in a credit conscious world here. 

But what if we put a requirement in that, on a certain periodic 

basis, that there must be a monitoring by the parent or the guardian, that the bill is not just sent to the student, but that there is 

a requirement that the monthly bill goes to the parent, as well, because if the youngster does not fulfill his obligation, somebody has 

to do it. And it’s normally—they’re going to go to the parent, anyway. The quicker we can bring the parent or the guardian into this 

situation to help in that might be helpful. 

Mr. THURMAN. Sir, I would suggest that, in my opinion, I would 

be opposed to that for a couple of reasons. The first would be 

some—what I would think, just from a student perspective, some 

obvious privacy concerns. Because although it is a young adult, it 

is an adult past the age of 18, as Mr. Clayton has pointed out. 

But, secondly, as Ms. Lindstrom has asked, if we do—in terms 

of our conditions for allowing them to have credit cards, if we do 

apply the same conditions to students as we do to, say, a 27-yearold line worker at the Ford Motor plant, then what we will have 

is we’ll have a student who has a part-time job allowed to have a 

credit card, not monitored by their parents, because they do have 

a source of income to pay that. 

A student who has no job does not get that credit card. And, as 

we have talked about earlier with cosigning, there is then an option for that student to get that credit card. And if the parent is 

cosigning, I would hope—or at least I know my father would demand some type of status update as we went along. 

Mr. SCOTT. Right, right. 

Chairwoman MALONEY. The gentleman’s time has expired. 

Mr. SCOTT. Thank you for your— 

Chairwoman MALONEY. Mrs. Biggert? 

Mrs. BIGGERT. Thank you, Madam Chairwoman. Mr. Thurman, 

in your written testimony you say that these cards are not tailored 

in any way to be financially beneficial for students. 

For the large portion of students who really do use their cards 

responsibly, isn’t there really, in fact, a tremendous benefit in the 

form of establishing credit history, and then they have an interestfree loan each and every month? 

Mr. THURMAN. That is correct, Mrs. Biggert, that is true. They 

have an interest-free loan each and every month, in terms of the 

credit card in the first 6 months. Then you get the 15 to 19 percent 

actual APR. 

And what I meant when I said that it’s not targeted toward students in any specific beneficial way is that there is nothing that a 

student gains from signing up for a credit card that my father 

doesn’t gain from signing up for a credit card, in terms of benefits. 

Mrs. BIGGERT. Well, should there be any difference? And isn’t 

it—with a credit card and a young person starting out with a card, 

they’re going to have a really low limit? 

Mr. THURMAN. Sure, they’re going to have a really low limit. 

Mrs. BIGGERT. And does that really, you know, affect whether 

they would need to have a parent or anybody? Because that really 

40 

is risk-based pricing, isn’t it, because the—let’s say—and as I recall, when my kids first started getting them, they were really low, 

like $500 or something, and they realized that they don’t go very 

far with that. 

Mr. THURMAN. Yes. 

Mrs. BIGGERT. And if they learn that lesson right then, then they 

balance whether they’re going to have an overdraft or not. 

Mr. THURMAN. That’s true. And if I may take that example, the 

$500 limit, and then also use Mr. Clayton’s statistical analysis 

that, of total student consumers of credit cards, only about 37 percent are carrying an average they don’t pay off every month. And 

on average, that balance is $452. 

So, let’s just assume on the low end they have a 15 percent APR. 

Now, I have to admit, I got a C in finite math for business, so you 

might want to check the math, but if I start in the fall semester, 

and I spend $452 on textbooks—and I am a full-time student, so 

I don’t have a source of income—and I have a 15 percent APR, by 

the time I finish that year in May, which is when I can go get my 

summer job, that $452, which was under the $500 limit, has gone 

up to $1,380. That is not including the over-the-limit fees and the 

late payment fees that I might incur. 

Mrs. BIGGERT. But you are assuming that you are only going to 

make the minimum payment. 

Mr. THURMAN. Actually, I am suggesting that I have no funds 

with which to make the payment. 

Mrs. BIGGERT. Then you shouldn’t have a card. 

Mr. THURMAN. Very good point. 

[Laughter] 

Mrs. BIGGERT. But do you really think that it is—aren’t we making it, then, harder for students to learn about it and obtain credit? 

I mean— 

Mr. THURMAN. I think if we take the position of quite simply saying no credit cards for students, yes, definitely. Mr. Clayton has a 

fantastic point. Students need credit cards, especially when our 

Federal and State systems are failing them, in terms of paying for 

higher education. 

But what we have talked about here in our discussion is a much 

broader scope of ideas: talking about cosigners; talking about making sure certain information is made available to— 

Mrs. BIGGERT. But still, it’s going to be the same thing, that if 

a student has $452 that they put on their card the first month, and 

then they don’t have the money to pay it back, it’s useless. 

Mr. THURMAN. Exactly. and if they didn’t have the money to pay 

it, that means they would have had to report a zero average income, which, right now, gets me a credit card. 

But if we’re talking about actual same standards for students as 

we have for people who work, for example, in a Ford Motor plant— 

I’m sorry, I’m from Detroit originally, so I have to plug the name— 

if we’re talking about the same standards, then that student 

doesn’t get the credit card without the cosigner. If there is a cosigner, then there is someone else involved who does have some 

sort of income, otherwise the credit card wouldn’t have arrived in 

that student’s mailbox. 

41 

Mrs. BIGGERT. Well, I don’t think that their parents would cosign 

it, if they knew that their child was not going to be able to pay it 

off. I mean, you would assume that they’re sending money to somebody who is in college, or they’re working part-time, and they’re 

going to build some funds. Because a credit card is for a loan, it’s 

not for just, you know, a piece of plastic that they can charge with. 

And that’s part of the problem, is some of these kids never realize 

that. 

Mr. THURMAN. I would suggest two things, Mrs. Biggert: First, 

that when we start talking about our students’ educations and financing it, that I am very reluctant to make any assumptions, especially about family financing; and second, that a credit card is 

not at all a loan. A loan is a loan, and a credit card is a high-interest way to take care of, hopefully, temporary financial needs. But 

that’s not how it’s being used, due to the circumstances surrounding our higher education system. 

Mrs. BIGGERT. Well, I think we have a little difference in the definition of what a credit card is, because it is an unsecured loan. 

Okay. I will yield back. 

Chairwoman MALONEY. I thank the gentlelady for her questions, 

and I thank all of my colleagues for their interest and their input. 

And the panelists, we appreciate it. 

The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses, and to 

place their responses in the record. 

The hearing is adjourned. Thank you. 

[Whereupon, at 4:10 p.m., the hearing was adjourned.] 

(43) 

A P P E N D I X 

June 26, 2008 

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