Under new credit regulations, banks are no longer allowed to issue credit cards to anyone under the age of twenty-one unless the applicant has a co-signer or proof that they can independently afford the card. This specifically undermines strategies that consumer banks long capitalized on on college campuses. Before such regulations, college campuses signed contracts with banks, allowing banks to market their credit cards to students on campus. Students were offered pizza, t-shirts, etc. in hopes that they would fill out a card application. Credit-cards were often given to students without checking income sources. Estimates suggest that in 2008, eighty-four percent of undergraduates had at least one credit card with averaging balances toping $3,100.
The article outlines that such regulations will pose a giant, strategical problem for banks across the board (especially Bank of America). Bank of America had contracts with over 906 college institutions and paid them over $62 million dollars for access to their student market. The bank opened more than 38,000 accounts per year, amounting to "roughly $1,600 paid for each new student account." JP Morgan Chase will also be widely affected. The bank paid over $13.9 million in contracts with college institutions to open 529 accounts, translating into $26,000 per student !!!!
These statistics and regulations indicate a couple things. First, college student credit card accounts represented a huge, profitable market for banks. Second, banks are willing to invest a ton in undergraduate students, knowing that they could be potential, long-term clients. And third, these regulations will severely hinder credit card interest profits that banks were making off of these students. But then again, there's always debit.
http://www.americanbankingnews.com/2010/10/28/new-credit-card-strategy-needed-for-bank-of-america-nyse-bac-jpmorgan-chase-nyse-jpm-and-others/
In order to regain some of their lost profits, banks are going to have to come up with new ways of making money. The information in your article indicates that it is going to be especially important for JPMorgan Chase and Bank of America to come up with new sources of revenue. This is yet another reason why our investment recommendation should not rest either of these two banks.
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