[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                     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

                 HOUSE COMMITTEE ON FINANCIAL SERVICES





                     U.S. GOVERNMENT PRINTING OFFICE

44-190 PDF                 WASHINGTON DC:  2008
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                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
BILL FOSTER, Illinois                KENNY MARCHANT, Texas
ANDRE CARSON, Indiana                THADDEUS G. McCOTTER, Michigan
JACKIE SPEIER, California            KEVIN McCARTHY, California
DON CAZAYOUX, Louisiana              DEAN HELLER, Nevada
TRAVIS CHILDERS, Mississippi

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

                CAROLYN B. MALONEY, New York, Chairwoman

MELVIN L. WATT, North Carolina       JUDY BIGGERT, Illinois
GARY L. ACKERMAN, New York           TOM PRICE, Georgia
BRAD SHERMAN, California             DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
DENNIS MOORE, Kansas                 PETER T. KING, New York
PAUL E. KANJORSKI, Pennsylvania      EDWARD R. ROYCE, California
MAXINE WATERS, California            STEVEN C. LaTOURETTE, Ohio
RUBEN HINOJOSA, Texas                WALTER B. JONES, Jr., North 
CAROLYN McCARTHY, New York               Carolina
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
AL GREEN, Texas                          Virginia
WM. LACY CLAY, Missouri              TOM FEENEY, Florida
BRAD MILLER, North Carolina          JEB HENSARLING, Texas
DAVID SCOTT, Georgia                 SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee             JIM GERLACH, Pennsylvania
PAUL W. HODES, New Hampshire         STEVAN PEARCE, New Mexico
KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
CHARLES A. WILSON, Ohio              PATRICK T. McHENRY, North Carolina
GREGORY W. MEEKS, New York           JOHN CAMPBELL, California
BILL FOSTER, Illinois                KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              DEAN HELLER, Nevada


                            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


                     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.
    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 generally 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, regulation, 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 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, 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.
    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.
    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.
    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 
large-scale 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 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 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.
    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.
    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 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 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.
    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 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 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 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 
well-maintained 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 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.
    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?
    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--
    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--
    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 participate 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 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 believe 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.
    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.
    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 acronym 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 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 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 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 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 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--
    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.
    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 
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.
    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-year-old 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 interest-free 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 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.
    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.]


                            A P P E N D I X


                             June 26, 2008


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