For the past several years, some of the credit card companies’ best customers have been young students who opened up cards without really understanding how credit works. This left many overspending students with bad credit histories before they had even left school and applied for a mortgage or car loan.
According to a new report, that’s because the learning institutions that they were enrolled in provided the credit card companies with their contact information – for a price. The new findings from the Federal Reserve show that credit card companies payed a combined $83.5 million dollars to academic institutions for access to the students, who quickly became lucrative customers, racking up charges and often necessitating a financial bailout from their parents.
Yet this wasn’t just a one-time fee. The colleges and universities actually collected royalties based on how many charges the students racked up. When the credit card companies made money off of a student, they kicked back a percentage of their profit to the school, in some cases.
The government’s CARD Act has put an end to these practices. Credit card companies can no longer lure students into signing up for a card through free gifts or promotion. In fact, anyone under 21 applying for a credit card must demonstrate a reliable income that will allow them to pay off their charges.