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)?

Direct Marketing and the Creation of Trust

At times, direct marketing is a tough gig! When bad press comes out, it really affects the work that all of us do on a daily basis. It's the whole story about the "one bad apple that spoils the whole barrel" thing (a few of you almost broke out in song there, didn't you?). The point is, it is imperative for us to market ethically -- otherwise, we lose the trust of our current and potential customers. We can be creative -- however, we must be truthful. Otherwise, consumers and businesses have no reason to trust what we say -- or what we sell. We strongly believe in creating trust through direct marketing -- and that by doing this, you build more profitable customer relationships.

Apparently, New York State attorney general Andrew Cuomo agrees with us. Last week, Cuomo called the direct marketing industry out when he announced he was expanding his investigation into the student loan industry to include direct marketers. In the article from DM News, Cuomo's office issued a statement that "described misleading marketing practices through direct mail, teleservices, television, radio, and online channels." The article further stated that Cuomo's office cited 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.

Additionally, Cuomo is looking into how companies market themselves through their slogans. For example, "LendingTree.com is being targeted because it promotes itself with the slogan 'When banks compete, you win,' but, according to Cuomo’s office, LendingTree.com 'had an exclusive agreement with EduCap and essentially offered only its [own] student loans.' " This seems to us simple folks like not a lot of competing was going on there. Geez!

The Direct Marketing Association (DMA) came out quickly in support of this investigation saying that "illegal marketing activities erode trust for the entire industry." In fact, Jerry Cerasale, SVP of government affairs for the DMA, went further: "If these actions violate the law, then they should be stopped. Legitimate marketers need to have trust in the marketplace, and violating the law undercuts that trust. This is not retail, where you can walk in and touch a product and buy it. With direct marketing, you don’t hold the product until after you’ve bought it, so trust is essential.”

Like other areas in business, there are some gray areas in direct marketing. I think the simplest way to look at it is with your "truthful lenses" on. If you are representing something other than what you are actually selling, you're not telling the truth. It's as simple as that! And, you're making it worse for the rest of us that do practice truthful direct marketing. Let's face it, we're all consumers of many different products and services. And, as such, we've run into offers that are "too good to be true." So, we've become skeptical for good reason.

We don't want our industry to be over-regulated by any form of government, however, someone has to step in when those in our industry make the decision to cross the line. We agree with the DMA -- trust is essential in direct marketing. We applaud Cuomo for his efforts to protect students!