Direct Marketing to Students: A New Code of Conduct

In a post in October, we discussed student marketing and the issue of the use of misleading advertising to get students to apply for student loans. In this post, we talked about the issue of trust in marketing and how New York State Attorney General Andrew Cuomo was taking marketers to task for "misleading marketing practices through direct mail, teleservices, television, radio, and online channels." Cuomo's office cited very specific examples that "included some companies who are accused of mailing commercial offers designed to look like official letters from the US Department of Education that warn students to protect their rights by calling the lender." Other inquiries went out from the attorney general's office that asked about other practices such as offering gift cards for applying for student loans and utilizing sweepstakes that encouraged students to take out loans.

As a result of this, and as reported in DM News, Cuomo has created a Code of Conduct for student loan marketers. This Code makes it easier for students to compare the terms of loans offered to them, and some in the student loan marketing industry are rapidly signing on. “We were an early signer of the code of conduct,” says Tom Kelly, SVP at Chase. “We think it makes sense to have all lenders operate under same rules and it makes sense to treat students honestly because we hope to have a long term relationship with them.”

What is involved in Cuomo's Code of Conduct? As the article states, "Under the new agreement, companies have to sign a uniform disclosure statement requiring them to list an annual percentage rate and provide students with an estimate of what their monthly payment would be and the amount they would pay for the life of the loan. Lenders cannot use false insignia or other devices that appear to be part of the federal government. They also are barred from using checks, deceptive rebate offers or other gimmicks to entice students."

Another feature of the Code is around prohibited use of gift cards, sweepstakes, contests, or prizes to entice students to sign up for loans. Here's the most interesting point . . . under this code of conduct, lenders are "required to tell students that they can get the best deal through federal loans." Wow -- this is one tough Code. As a marketer, this seems to go against the very core of marketing principles. However, is this a case where desperate times call for desperate measures? Hmmmm.

So, does this new Code go too far? Well, Chase SVP Kelly doesn't think so. In fact, Kelly says, “I think it will create a level playing field,” he says. “The biggest impact on the market is the reduction in the federal subsidy for student loans, which will make them more expensive and continually grow the gap between the cost of education and a family's ability to pay for it out of pocket.” And, this comes from one of the top student lenders in the country (Chase is ranked in the top 8).

We'd love to hear your thoughts on this one. Does Cuomo's Code of Conduct get in the way of effective marketing? Or, do you think it's good to have this stringent type of policy in place for student loan marketers? Finally, do you think that such a Code should apply only to certain industries (i.e., student lending) or should similar principles be applied across industries (i.e., mortgage lending, telecommunications)?