Student credit cards and young credit

Banks paid $83 million in ’09 to market credit cards to college groups


Once-secret agreements, forced into view by the 2009 credit card reform law, reveal the vast scope of student, alumni marketing

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Credit card issuers paid $83.5 million to more than 1,000 American colleges, universities and affiliated organizations in 2009 for the rights to market their credit cards to students and alumni, says a Federal Reserve report released Monday.

On-campus credit card marketing is a once-common activity that has been curtailed by the Credit CARD Act of 2009.
The Federal Reserve delivered a report to Congress Monday revealing for the first time the scope of credit card issuer marketing agreements with schools and affiliated groups. The study focused on the agreements in place in 2009.
Total agreements1,044
Card accounts resulting from the agreements2 million
Card accounts opened in 200953,164
Percentage of accounts from Bank of America, Chase and U.S. Bank96%
Source: Federal Reserve

The Report on College Credit Card Agreements, the first of its kind, was mandated by the Credit CARD Act of 2009 as part of sweeping reforms to rein in credit card marketing to college students under age 21.

Terms of the lucrative contracts — including payments made by credit card issuers to educational institutions and affiliated organizations ranging from alumni associations to fraternities and sororities — had long been withheld from public scrutiny by both parties. It was necessary, issuers said, for competitive reasons or because of confidentiality agreements.

“Our primary goal was to have disclosure of college credit card contracts, which the credit card industry had spent years trying to keep hidden from the public,” says Ed Mierzwinski, consumer program director of U.S. PIRG. “They tried to launder them through alumni associations, claiming that alumni associations weren’t subject to public records laws, and for a while that succeeded. But it wasn’t good for public policy.”

The CARD Act now requires that such contracts be reported to the Fed annually, a move that has already resulted in a precipitous decline in college affinity card programs. While some institutions have already discontinued the lucrative programs under pressure from student and consumer groups, the full impact of the card reforms on college affinity card programs won’t be apparent until this year’s findings can be compared with next year’s report.

Critics of the deals and consumer credit counselors say college affinity credit card programs help foster a culture of debt and free spending among young people that landed many in financial trouble. Others argue, however, that young adults need credit cards to build credit histories so they can qualify for mortgages and car loans as they enter the working world.

1,044 credit card agreements
The report, based on 1,044 credit card agreements submitted by 17 card issuers with active programs in 2009, reveals, for the first time, the major issuers, chief beneficiaries, and the depth and scope of college affinity card marketing programs.

Interestingly, the Fed notes that some issuers submitted contracts made with fraternities, sororities and professional or trade organizations, which the Fed decided to include in its report, and which paint a truer picture of the range of college affinity card programs.

Three issuers — Bank of America (through its FIA Card Services), Chase and U.S. Bank — accounted for 96 percent of all contracts submitted. Bank of America was, by far, the biggest player with 906 of the 1,044 contracts under review — no surprise, since it acquired MBNA and its industry-leading affinity card portfolio in 2006 to become the nation’s largest card issuer.

Bank of America spent nearly $62 million and opened 38,610 accounts under its college affinity program in 2009. Chase, which submitted 36 agreements, spent nearly $14 million and signed on 529 new cardholders in 2009. U.S. Bank, which submitted 60 agreements, spent more than $2.5 million and opened 7,911 new accounts last year.

Bank of America spokeswoman Betty Riess takes exception with critics who say they targeted undergraduates with their college affinity card programs.

“Students have never been the target market for these cards,” she says. “These relationships are primarily with school alumni groups or athletic departments, and the market for the cards is alumni and other nonstudents. Nonstudents account for about 98 percent of all open (affinity) accounts.”

“That’s not to say there may not be some students who have an open account, but they’re definitely not the target market. We aren’t marketing credit cards to students on campus and haven’t done so for some time, even before the CARD Act went into effect.”

The data gathered by the Fed shows that although institutions of higher learning led the list with 413 card agreements and more than $22 million in payments last year, the major bucks went to alumni associations which, with 348 agreements, pulled in twice the cash — $44 million. Consumer groups have long complained that such third-party contracts led to a list of abuses, particularly with regard to marketing to undergraduates.

Alumni associations accounted for six of the top 10 beneficiaries, including the University of Illinois ($3.3 million), Penn State ($2.8 million), Wisconsin ($1.7 million), Michigan ($1.5 million), South Carolina ($1.4 million) and Duke ($1.4 million). (See top 10 most-lucrative college/alumni credit card deals.)

Top 10 school beneficiaries were Notre Dame ($1.9 million), the University of Southern California ($1.5 million) and Tennessee ($1.4 million).

Alumni groups got slightly more than half of the $83.5 million paid by credit card issuers for the right to market their cards to education-affiliated groups. Colleges and universities were directly paid about a quarter of the time, and foundations and other organizations, such as fraternities, split the rest.

Source: Federal Reserve Board

Rounding out the top 10 is Golden Key International Honour Society, an Atlanta-based organization that “recognizes and encourages scholastic achievement and excellence among college and university students.”

Payments to the top 10 beneficiaries accounted for less than a quarter (22 percent) of all card agreement payments in 2009, an indication of how widespread affinity card marketing agreements have become.

In exchange, the card marketers got lists of phone numbers, e-mail addresses and physical addresses from the college, alumni association or other school-related group, and the right to market cards to them a specified number of times.

The Florida State University deal, for instance, gave Bank of America the right each year to: conduct at least six direct mail campaigns to the students, alumni and boosters; make at least six telemarketing contacts to the same groups; market to all students; and hold on-campus promotional campaigns including tables and postering at major school events.

A closer look at the details of all 1,044 card agreements, available on the Fed’s new searchable database, reveals some interesting players and the cash it took card issuers to seal their deals.

For instance, consumers for the first time are able to see how their fraternity or sorority benefited from agreeing to have their Greek symbol used to market credit cards to brothers and sisters. Although a few of the houses that participated took no remuneration, the vast majority did.

For example, Alpha Delta Pi sorority in Atlanta pulled in $91,400 last year, Kappa Alpha Theta fraternity in Indianapolis received $31,372 and the sweethearts of Sigma Chi Foundation in Evanston, Ill., hauled in $13,205. Don’t expect to see links to this database on their Facebook wall, however.

Although a handful of colleges and universities, including Baylor, Cal State-Hayward, Long Island University, St. Bonaventure, the U.S. Air Force Academy, Western Connecticut State and Vassar declined remuneration, the vast majority of colleges received payments of four to six figures for participating in affinity card programs. In general, the larger the school, the larger the payment, with the exception of a few small, prestigious or specialty colleges.

There were indications that some programs were already in decline or suspended completely in 2009. For example, California’s University of La Verne was paid $10,629, Georgia’s Life University $4,295, New York’s Houghton College $4,251 and West Virginia State $1,962, all without opening a single account.

A combination of factors led to the decline:

  • The Credit CARD Act, which sharply restricted the once-free rein that card issuers had to market cards on campus.
  • The economic downturn that substantially dried up direct mail marketing.
  • A distaste for debt after the nightmare on Wall Street.

Although it makes sense that students and graduates of advanced degree programs, especially in such high-earning disciplines as medicine, law and engineering, would be prime targets for card issuers, it’s still surprising to see graduate programs on the contract list. They include New York’s Albany Law School ($4,061), New England School of Law ($2,655) and the Pennsylvania College of Optometry ($5,088).

For the same reasons, professional organizations were highly prized by card issuers. Included on the 2009 list: American Association for Justice ($364,033), American Chemical Society ($294,215), American Occupational Therapy Association ($79,492), Association for Computing Machinery ($140,515), Society of Nuclear Medicine ($11,357), and the Society of Women Engineers ($11,624).

The Fed points out that, because the scope of its report covers all card agreements in effect during 2009, agreements that terminated in 2009 or 2010 or were amended due to new CARD Act regulations may not be accurately reflected in this year’s report. Those revised agreements will be included in the Fed’s next collection of college affinity card contracts, with an issuer deadline of March 31, 2011.

College/organization Credit card issuer Amount received in 2009
University of Illinois Alumni AssociationFIA Card Services, N.A.$3,272,457
The Penn State Alumni AssociationFIA Card Services, N.A.$2,835,000
University of Notre Dame du LacChase Bank USA, N.A.$1,860,000
Wisconsin Alumni AssociationFIA Card Services, N.A.$1,652,449
Golden Key International Honour SocietyFIA Card Services, N.A.$1,540,442
University of Southern CaliforniaFIA Card Services, N.A.$1,502,850
Alumni Association of the University of Michigan and the Regents of the University of MichiganFIA Card Services, N.A.$1,500,000
University of TennesseeChase Bank USA, N.A.$1,428,571
The Greater University of South Carolina Alumni AssociationChase Bank USA, N.A.$1,425,000
Duke Alumni Association Inc.Chase Bank USA, N.A.$1,375,000
Total of the Top 10$18,391,769

See related:Earlier story: Campus marketing deals about to be revealed, Fed: Credit card issuers, stay far away from college campus, Video: New card law changes relationship between colleges, issuers, College students love, hate new credit card law


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