How much is your credit score worth? $50? A T-shirt?
That’s some of the swag you’ll find banks offering on the Drag in upcoming weeks as they attempt to entice students to open accounts at their branches.
Historically, new college students have been easy prey for banks looking to make quick money though predatory practices. First-year college students are often particularly vulnerable as they struggle to come to terms with their new-found lack of supervision, and are generally less knowledgeable about the ins and outs of banking practices.
Before long, however, new students’ naivete is often quickly replaced by a painful lesson in credit card debt. A recent study found that 84 percent of undergraduates held a credit card with an average balance around $3,000.
Last year Congress finally succeeded in passing the Credit Card Accountability Responsibility and Disclosure Act, or CARD, the first meaningful credit card reform in years. The law took effect in February, and the last batch of regulations were implemented last week.
Those reforms include limitations on banks’ ability to increase interest rates on existing accounts, eliminating misleading language from contracts and charging excess overdraft fees — an unfair practice that for years has provided banks with huge profits. Banks made an estimated $10 billion per year from overdraft fees alone, according to the Center for Responsible Lending. Fees average $34 while the average overdraft is only $17.
Several new provisions are directed toward college students and the sometimes deceptive practices banks use to enroll them. Under the new law, banks are prohibited from enticing individuals to open an account with promotional gifts and must now provide a reason for participating in on-campus events and distributing materials on college campuses. Other restrictions aim to protect young debtors; applicants under 21 years old must either have a co-signer, such as a parent, or show they are able to pay their balance before being offered credit.
There’s an old saying about Las Vegas: All those pricey high-rise casinos weren’t built with the money from winners.
The same logic applies to banks, especially regarding college students — banks don’t make their money when you pay your bills on time.
Despite whatever rhetoric they spout when soliciting new customers, banks have a vested interest in charging you for every fee possible. As bad as it sounds, banks succeed when you fail. If they didn’t rely on fees for huge portions of their revenue, they wouldn’t have spent millions lobbying Congress against those very reforms in the last financial quarter.
Large banks, such as Bank of America, claim the reforms actually hurt consumers. In a recent press release, Bank of America said the new laws would result in higher interest rates and give Americans less access to credit.
If banks alter their business practices in light of the new reforms, it’s not because Congress told them to. It’s because their profit-margins and bottom-line are more important than their ethical responsibility to their customers.
Earlier this month, Wells Fargo lost a class-action lawsuit in California over its implementation of overdraft fees. Wells Fargo was found guilty of manipulating clients’ transactions to maximize the amount it could charge customers in overdraft fees and now must pay customers $203 million.
A bank is a business. It is not an altruistic piggy bank in which you can keep your money. And it is certainly not your financial partner.
These banks are also not some mythical boogeyman far off in Washington, D.C. They’re right across the street, dotted along the Drag.
So, freshmen, be wary the next time you find yourself way laid on the way to Pita Pit. Whatever cheap enticements a branch may offer you pale in comparison to the massive damage the fine print could wreak on your current and future finances.