Credit card companies are still able to get at college students despite tougher laws. Photo Credit: MoneyBlogNewz/Flickr/CC-BY-SA

Part of the provisions of the CARD Act, the law aimed at taming ethically suspect practices of credit card companies, was restrictions on how credit cards could be marketed to college students. Card companies are now finding ways around that.

Coeds can’t escape copious cadre of cards on campus

The Credit card Accountability, Responsibility and Disclosure Act was a concentrated effort by legislators to restrict credit card company practices that many people felt weren’t ethical. One of the provisions of the CARD Act was to prohibit credit card companies and card issuing institutions from marketing heavily to college students, but they are finding ways back onto campus, according to a recent article in the Wall Street Journal. The law prohibits any free promotional gifts to students, but that doesn’t prevent card issuers from offering other things like the $50 bonus for signing up for a card, as Citibank does. Chase decided to market to students on Facebook and offered “karma” reward points for friending the Chase Facebook group.

No laws broken

Most credit cards are issued by banks, not credit card or finance companies themselves. Banks are still allowed to hand out promotional literature for checking and savings accounts, just not credit cards. However, many people see that as a canard. Most marketing to students by financial services companies appears to be on the level, as a recent survey of college students by the University of Houston Law Center found 73 percent of credit card marketing to students didn’t take place on campus. Students are just as eager to skirt rules in order to get a credit card; the same survey found 29 percent of students who applied for a credit card used their student loan disbursement amounts as the proof of income required for students to get a credit card.

Financial burden of college increasing

The increasing cost of attending a four-year university is an easy inducement for students to get credit cards to experience some comforts, like a meal consisting of more than macaroni and cheese. More students go heavily into debt during college. The Sallie Mae foundation found that 92 percent of college students in 2009 charged an educational expense such as tuition or books and 20 percent of college seniors carried at least $7,000 in credit card debt, according to U.S. News and World Report. The class of 2011, according to Time, carries the highest average college debt ever seen. The class of 2011 carries a $22,900 debt burden on average. That’s an increase of 8 percent from 2010 and a 47 percent increase from 2001.

Sources

Wall Street Journal

Time

U.S. News and World Report

Musician Lily Allen is just one of the many big-name artists on the embattled EMI label. Image: Wikimedia Commons

In 2007, investment firm Terra Firma purchased control of music giant Electric and Musical Industries Ltd. After losing more than $2.5 billion on the investment, Guy Hands of Terra Firma’s decided to sue Citibank. A jury has found, however, that Citibank did not defraud Terra Firma in the purchase of EMI, as was accused.

Terra Firma purchase of EMI

In August 2007, investment company Terra Firma made a $6.8 billion purchase of British company EMI. Citigroup funded the purchase, just before credit markets seized in October of 2007. Since that purchase, Guy Hands, who controls the Terra Firma fund, has lost billions in the company. He has also been the target of frustrated investors who are not happy with the fact two-thirds of the fund is tied up in the quickly shrinking EMI.

Terra Firma takes Citigroup to court

Citigroup, which funded the Terra Firma purchase of EMI, has been on the defensive. Terra Firma sued Citigroup, claiming, among other things, that the company defrauded Terra Firma in the EMI purchase. Terra Firma apparently believed that it was in a “bidding war” for EMI, when it was not. A jury unanimously found that Citigroup did not defraud Terra Firma in the purchase.

What is next for EMI?

EMI is one of Britian’s largest music labels. Musicians as diverse as Lilly Allen and the Rolling Stones have been or are on the EMI label. When Terra Firma and Guy Hands took over the label in 2007, spending was slashed at every corner almost immediately. Many large acts, including as the Rolling Stones, decided to leave the label. Despite the cost-cutting, however, Hands is claiming that EMI has cost him more than $8 billion. Hands may very well be removed as the head of Terra Firma, as well as EMI. Citigroup has said that, because of the lawsuit, the company is “much less likely” to be willing to discuss refinancing for EMI. This could leave the musical industry giant ripe for takeover or purchase by yet another company.

Source

Business Week

Apartment building loans are being shifted around the big lenders Citi and JP Morgan Chase. Image: Flickr/NCinDC

As a part of its goal of expanding its lending portfolio, JP Morgan Chase has purchased a loan portfolio from Citi. The deal is worth about $3.5 billion, and is a part of the $8 billion in troubled loans Citi has been selling to others. The purchased loans are practically guaranteed payday loans for JP Morgan Chase, as they are loans for apartment and multi-family buildings.

Citi selling off no fax loan portfolio

As a part of its rebuilding strategy, Citi has been selling off a wide range of loans and securities. Citi Holdings group has been the recipient of some of these loans, while about $19 billion worth of products have been sold to other companies. In short, Citi is trying to shrink its business, while selling securities at close-to-value prices.

JP Morgan Chase purchases credit loans

The portfolio that JP Morgan Chase has purchased from Citi includes about 3,800 multi-family dwelling loans. With this purchase and others, JP Morgan Chase has become the third-largest mortgage lender behind Fannie Mae and Freddie Mac. This adds to the $300 million in multi-family loans that JP Morgan Chase has “in the pipeline.”

The increase in mortgage lending

Applications for new mortgages have been slowly but surely ticking up. Applications for new home loans increased by about .6 percent last week. The number of people who need a loan but are not applying for one, though, also appears to be rising. Though legislators are putting pressure on banks to increase their lending, banks are fighting back. The argument is that banks are doing everything they can to offer loans to “credit-worthy” applicants. After years of economic downturn and job losses, there are fewer “credit-worthy” people than ever. JP Morgan Chase’s purchase of multi-family home loans is helping shift assets around large banks, but there is debate as to whether it will actually help increase lending from either entity.

Federally backed student loan securities are up for sale. Image from Flickr.

A few lenders that deal in federally backed student loans are planning a big sale. Securities made up of or combined with student loans are set to go on the market very soon. Is this sale of government-backed loan credit by private businesses a good idea? Or are businesses relying on taxpayers to bail them out should something go wrong?

How student loans have worked

Up until the recent student loan bill passed, student loans have been privately administered. The federal government backs the loans, but private businesses are responsible for lending, administering and collecting the loans. The theory was that these would provide the best personal loans to students. The most recent student loan bill changed this, cutting out the middleman and moving student loan administration to the government.

The student-loan backed securities

Much like the subprime mortgage securities that very nearly brought down the entire economy, student-loan backed securities are “bundled.” A group of loans is combined and re-split into “loan-backed securities” that are bought, sold, and traded by investors. Because these student loans are government-backed, they are considered “safer” investments. A company owned by Citigroup Inc. is going to be selling $855 million worth of these securities. Bank of America is also going to be selling $1.23 billion of student loan backed bonds. Sallie Mae will also sell $1.7 billion in bonds. This is in addition to the $8 billion of student loan backed securities already sold this year.

A smart financial investment?

The student-loan backed securities being sold as federally guaranteed loan securities will benefit the companies and investors. The federal government and taxpayers who take on the risk of these student loan bonds, however, will not be seeing much benefit. This is a situation, luckily, that has already been resolved — partially. The new student loan bill takes private businesses out of the mix. At the same time, will the federal government continue to sell these securities? At least if it does, the taxpayers will see the benefit this time.

Citibank sent the letters on February 16

The company is calling it a “processing error,” according to the Chicago Tribune. The numbers appear at the lower edge of the envelope with other numbers and letters. So it isn’t as obvious as problem flatulence, but it is definitely a bit of a brain fart on the part of Citibank, Citigroup and everyone else in the Citi family. But don’t worry; Citibank Client Services Director Norman Wright sent letters to all 600,000 customers in an effort to clean up the mess. He extended an offer for free credit monitoring for 180 days. Unfortunately, now that forgers know to wait 180 days, perhaps that isn’t enough. They could be using your Social Security number to take out money loans.

The error produced “little to no risk” to Citibank customers?

Talk about spin control by Citibank. Citigroup and its board of directors must be proud, and shareholders must be exceedingly happy that the company is so deftly handling the situation. In Wright’s apology letter he says as much, that there is “little or no risk.” Isn’t it comforting to know that your bank is actively lying to you, Citibank customers? How could there be little or no risk if unauthorized people are getting hold of your Social Security number?

If you’re a Citibank customer, are you satisfied with their offer?

Personal Money Market would love to know your thoughts on the matter.

(Photo Credit: http://www.flickr.com/photos/kiwanja/ / CC BY 2.0)

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