The Power Of Plastic
If the bill for America's love affair with credit cards came due today, it would cost $600 billion dollars, an expensive affair.
And now, the power of plastic is seducing the college crowd. Big profits are at stake, and, believe it or not, colleges are making millions of dollars for letting banks hawk their credit cards, right on campus
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The General Accounting Office is taking a look at all this, as is Congress and a few states. Under pressure, some colleges are now kicking banks off campus.
But, as 60 Minutes II Correspondent Vicki Mabrey reported earlier this year, all this concern comes too late for a mother who lost her child to the lure of plastic.
Janne O'Donnell repeatedly knocked at her son's door one day only to find "he had hung himself in the closet," she recalls.
By the time he took his life at age 22, O'Donnell's son, Sean Moyer, a National Merit Scholar headed for law school, was deep in debt and desperate.
"It just did not occur to me that you - you would give a credit card to an 18-year-old, who was at that time making minimum wage," she says. "I never thought that he would end up with, I think it was two Visas, a Discover, a MasterCard. When he died, he had 12 credit cards."
Moyer was more than $14,000 in debt, even though his mother had already bailed him out once. O'Donnell blames her son, but says he always worked hard. He had worked since age 16 and had two jobs when he died. She says he was just naïve, taken in by slick credit card vendors.
She didn't have to co-sign for him, because he was 18, she says. "Anybody that has 18-year-olds knows they are not adults. I don't care what the law says. They are 18 one minute; they are 13 the other. Here they are in college, their first time away from home. They're learning to manage their money," O'Donnell says.
It's easier for 18-year-old college students to get credit cards than ever before.
O'Donnell says her son got credit cards first at the University of Texas at Dallas. "When we took him to college, they were there, and they were handing them out.
At the University of Oklahoma, where Moyer transferred when debt forced him to move back home, credit card vendors were set up all over the stadium.
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Banks argue they're giving young adults a great opportunity to establish credit early - at interest rates as high as 21 percent to cover the risks. Bank studies found that more than half of students pay their complete balance every month. But 60 Minutes II discovered that many more are going broke. In 1999, a record 100,000 people under age 25 filed for bankruptcy.
America's growing dependency on credit worries University of Houston Professor Robert Manning, an expert on consumer debt. "This is simply an industry that's trying to make easy money at the expense of the future of our young Americans."
The credit line typically extended is for about $500, according to Manning. "I've seen them go up as high as $10,000 for students under 21 years old."
"Students are the only market that isn't saturated," Manning says. "Every year you're talking about anywhere from 25 to 30 percent new students arriv(ing) on campus."
"It wasn't a problem originally when the credit industry was offering $200, $300, $500 to students," he says.
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First USA pays $3 million to get on campus and issue a credit card with University of Oklahoma's name on it. Hundreds of colleges are cutting similar deals.
The 10-year contract between First USA and the University of Oklahoma gives the bank the exclusive right to market its MasterCard or Visa to the alumni, employees and students.
First USA guarantees the university a minimum payment of $13 million and the school gets four-tenths of 1 percent of every purchase students charge.
On demand, the university agrees to provide the bank with the names, addresses and phone numbers of its 21,000 students.
"This is where the university has crossed the line, by accepting millions of dollars of royalities," Manning says. "The more their students are in debt, and alumni are in debt, the more money that they are ultimately going to be able to get in future contracts."
Oklahoma University president David Boren, who signed the contract with First USA, refused to talk to 60 Minutes II and so did the bank. Instead the university sent a letter outlining its finance seminars and saying that its students are 18, "citizens with the right to vote."
"Why don't we open bars and a whorehouse, too?" O'Donnell asks. "It's wrong to give people credit they can't handle. There are other ways to raise funds. You don't prey on people."
First USA has similar contracts with several hundred colleges, as does its rival MBNA.
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But vendors need not have a contract. Credit card vendors like Juliann Pedersen pay schools a few hundred dollars a day to set up tables and sign up students.
"Many of the schools are very anxious to have us there. They actually will call us up and ask why we haven't been there...for a time," Pedersen says.
"We live in a capitalistic society," says Pedersen, who has worked campuses nationwide for nearly a decade. "Universities need money to make the schools happen, and we're a profit center for them."
She fingers the students' "irresponsible behavior."
"That is the whle belief system that they're brought up with - that it's easy money," Pedersen says, adding, "A credit card is not free money."
But making sure students take the bait has turned into a science. 60 Minutes II showed Pedersen an industry training manual indicating her job is to get kids to take the cards.
If the student says, "I'm afraid I may go into debt," the solicitor is supposed to say, "Now is the perfect time to learn how to manage credit."
"Many students say the(y) make no money, but their parents give them $200 a week; they have a car that's paid for with gas in it," Pedersen says. In addition to college being paid for, "they have books. They have great haircuts and really nice jackets and beepers and cell phones and jewelry and really cool shoes....These kids have no responsibility and no concept of money."
Parents like Trisha Johnson think that's why banks and universities should not come between parent and child: "The parents ought to have a say in how much credit they can have. And 'cause eventually the parents are probably going to be paying the bill."
Johnson lost her daughter - Mitzi Pool - when she panicked over debt. Pool racked up $3,000 on credit cards she got at the University of Central Oklahoma.
"Ten dollars minimum payment - it'd look easy to anybody," Johnson says. "She knew she could handle that....They don't realize that once the balance gets bigger, that minimum payment's more."
Pool had worked since she was 14. helping her divorced mother with the bills. But those lessons in finance didn't keep her from getting in trouble.
"She called the day before her death, Dec. 1, crying that she'd just lost her job...and didn't know what she was going to do," Johnson says.
Johnson told her daughter they would go over the bills and figure out something, she recalls. "And she seemed fine...with that."
But inside her dorm room, Pool, then 18, spread her bills over her bed and hung herself with a rope made from a bed sheet.
"I blame the credit card companies more than anything," Johnson says. "I don't blame Mitzi....I'm disappointed that she spent the money like she did."
Debbie Alford, who lived in Pool's dorm and tried to revive her before realizing she was dead, also wound up deep in debt. "It wasn't up until I was 21 or 22 that it started getting really scary, that I knew I was in trouble," Alford says.
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Now 24, Alford is working full time and still trying to graduate. She says banks kept increasing her credit limits, and she kept charging - clothes, concert tickets and pizzas - until she was $14,000 in debt and only earning $4,000 a year.
"When you go into college, no one ever teaches you about credit cards and interest rates and monthly payments," she says. "The banks know exactly what they're doing."
She filed for bankruptcy. "It's like you're drowning, and...you can't come up for air....I had no other way out," Alford says.
The University of Central Oklahoma says it no longer has a credit card contract with MBNA but it does still allow credit card vendors onto campus, like one 60 Minutes II videotaped in October.
Many other colleges have banned vendors, but few are giving up the lucrative contracts.
Long after their deaths, Pool and Moyer received credit card applications in the mail. Yet the banks that did not require their parents to co-sign were after them to pay the bills.
"I'm stubborn. I will not pay his debts off," says O'Donnell. "For the longest time they would call. And we had one say that if you really wanted to honor you son, you'd pay off the credit card."
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