Trading app targets students
Lawmaker compares sales tactics to those of credit card companies
Robinhood, the preferred trading app of young investors, recently announced plans to tour college campuses around the country with a particular focus on recruiting young traders at community colleges and historically Black colleges and universities.
Representatives from the company are offering students who sign up for brokerage accounts using their school email address incentives like $15 to trade and a chance to win $20,000, the Wall Street Journal reports.
Sound familiar? According to state Sen. Andrew Gounardes, D -Brooklyn, it should. Similar sales tactics were deployed by credit card companies in the early 2000s until federal laws banned the companies from coming within 1,000 feet of a college campus, Gounardes said.
Gounardes has written a letter to the state Department of Financial Services’ acting Superintendent Adrienne Harris asking her to “examine the practices that Robinhood is engaging in on New York’s college campuses to determine what additional safeguards and regulations are necessary to protect New York’s consumers.”
Both credit card issuers and Robinhood have argued their companies enable young people to become more financially literate and plan for the future. But sign-up comes at significant financial risk.
“As a company that thrives on encouraging inexperienced clients to trade, Robinhood runs the risk of exploiting students in the same way credit card companies once did before their tactics were regulated,” Gounardes wrote in his letter.
Robinhood, a commissionfree investing and trading platform, has been criticized for “gamifying” stock trading. The app can feel more like an online casino than a serious investment tool.
The brokerage has recently agreed to pay massive fines amid accusations that it misled customers and enabled inexperienced investors to engage in risky trading strategies.
One particularly tragic case drew attention to the program’s spotty customer service. A college student took his own life after a glitch in the software indicated he had a negative balance of $700,000, but his attempts to reach a live customer service rep were unsuccessful.
Novice investors recently got burned in the Gamestop trading frenzy, which earlier this year prompted Robinhood to temporarily suspend trading of certain “meme stocks.”
Many lawmakers have called for more federal oversight of the company.
For the most part, Wall Street is overseen by the U.S. Securities Commission and the Financial Industry Regulatory Authority but the state DFS has the power to regulate cryptocurrency trading in New York, Gounardes said in an interview.
“Let’s leverage the regulatory powers we have in New York to maximize protection for people who live here ... which will make sure that federal regulators are paying attention to it,” he said.
Some community colleges have sought to enact their own safeguards against marketers of financial services. A spokesman for Hudson Valley Community College, one of the largest community colleges in the region, said officials there had no knowledge of Robinhood reaching out to students or running programs on its campus.
“Hudson Valley Community College prohibits any organization from coming on campus and promoting their products or services to our students (or employees) without prior consent and partnership,” spokesman Denis Kennedy said. “We prevent posting publicity materials or distributing publications on campus as well, and access to student contact information is restricted.”
A 2005 campus policy specifically prohibits the marketing or merchandising of credit cards on campus.
Gounardes is the main Senate sponsor for the New Deal for CUNY, which calls for New York City’s public university system to be tuition-free — just one reason he says he’s drawing attention to Robinhood’s campaign.