When you’re twenty years old and you get a credit card offer, many people anxiously sign up. When you’re forty years old, consumers become much more jaded and the offer is more likely to end up in the trash bin. Marketing to customers has always been a difficult task, and with the new legislative changes that job will become increasingly difficult.
Credit card companies love customers that rack up a lot of debt, and pay it off slowly over time – something college students have been prone to doing. Thanks to the credit card reform laws passed last year, card issuers were required to disclose the agreements they make with colleges and universities, as well as affiliated organizations like alumni groups, in order to offer cards to college students.
It wasn’t entirely clear just how lucrative college students were to card issuers. Based on figures released in the report, though, it’s obvious that the college market was worth a lot to major institutions. Bank of America (NYSE: BAC), the Charlotte based bank currently embroiled in a foreclosure fiasco is said to have had a whopping 906 agreements with institutions of higher education. The company paid almost $62 million to those institutions under the agreements and opened more than 38,000 accounts during the year. That translates to around $1,600 paid for each new student account. That is an extremely high client acquisition cost. Bank of America is not the only aggressor in this case, JPMorgan Chase (NYSE: JPM) prominently occupies the number 2 spot, with payments of $13.9 million going to open just 529 new accounts, or an astounding $26,000 per student.
New credit card laws restrict activity on college campuses, but they won’t make it impossible to sign up students. Those under 21 will have to prove they have enough income to pay their card bills or get someone 21 or older, such as a parent, to co-sign for the card. Card companies can’t offer free promotional items to complete card applications on or near campuses, and sending students preapproved credit offers has been restricted. This is going to seriously impact the pipeline of young customers for the major banks, and re-shape the future of their business as well. As consumers have become more credit conscious, the individuals may end up in a more sound financial position, but the banks will be starving for profits in some cases.
