What ethical issues should the senior management team of our financial company address relative to the marketing of credit cards to college-aged consumers, and what processes should senior management use to address those issues?
The increased use of credit cards among college-aged students has become a concern as credit card debt continues to grow. While credit card usage has its advantages, we are concerned that credit card solicitors unfairly exploit inexperienced young adults into adopting excessive spending habits when they may not understand the long-term implications of their credit card spending and payment practices. This paper will investigate the ethical issues that the senior management team of your financial company should address relative to the marketing of credit cards to college-aged consumers, and the processes that should be used to address those issues.
Banks target college-aged consumers because they are the only adult demographic – with abundant purchasing power – primarily made up of non-credit card holders. Banks attempt to provide students with credit cards and bank accounts because young adults do not have many established financial relationships and have a long credit life head of them. Secondly, many students tend to be loyal users of their first credit card for many years. The brand loyalty of first-time credit card users may translate to greater returns over time as these consumers grow in age and affluence, and seek additional services such as car loans, mortgages, and investment accounts.
Major credit card companies have been accused of targeting young adults, many of whom have accumulated debt with college tuition fees and loans and are generally uninformed on the potential dangers associated with mismanaging their assets. For college students who accumulate a significant amount of credit card debt, the stress associated with the debt may negatively impact their academic performance, as they are more likely to seek employment to pay off their debt. In addition, young adults who accumulate large sums of debt may also experience overwhelming amounts of guilt and emotional distress.
Although it may seem like a simple case of “Caveat Emptor” when it comes to students’ signing up for cards, we’ve identified a number of stakeholders who have an interest in this process. The primary stakeholders in this situation are the credit card companies, credit card company employees, credit card company shareholders, banks, bank employees, bank shareholders, college students, students’ families, and colleges. We’ve identified the secondary stakeholders as the local businesses in collegiate towns, debt collectors, credit bureaus, and the community.
The Credit Card Accountability, Responsibility and Disclosure act of 2009, also known as the Credit CARD Act, has mandated reforms for the credit card industry to protect the interests of credit card holders. Some of these reforms include placing limits on when banks and other issuers can increase annual percentage rates and allowing credit card holders more time to pay bills.
College students make up a unique demographic of individuals and have a great deal of spending power. Students’ discretionary spending reached $76 billion in 2010 – up $2 billion from 2009, according to Alloy Media + Marketing projects (The Project on Student Debt 2011). Credit card companies compete to be the first credit card that the student owns, in an effort to build customer loyalty. Students, during their first extended stretch outside the home, are developing brand preferences that can last throughout their adulthood.
However, we have found that an increasing number of students charge more than they can pay, beginning their adult lives in debt before they begin their working lives. As of 2008, 84 percent of college students had at least one credit card. A 2009 study conducted by Sallie Mae suggests that 50 percent of college undergraduates had...
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