Research and Statistics

Once secret credit card-college marketing deals to be revealed


The credit card reform law requires disclosure of the highly lucrative agreements under which colleges were paid to let card issuers market their wares to students, alumni.

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See later story:  Banks paid $83.5 million to schools, alumni groups to market cards

The sun is about to shine on those controversial college credit card agreements. Once secret credit card-college marketing deals to be revealed

The terms of lucrative college affinity card contracts between colleges and universities and credit card companies that have been shrouded in secrecy for decades will soon be made public, thanks to reporting and disclosure provisions of the Credit CARD Act that take effect Feb. 22.

By that date, card companies that contract with colleges and universities to issue affinity credit cards emblazoned with school logos and campus images must submit a report to the Federal Reserve detailing the terms of those contracts by institution. The Fed will then compile a report and make it publicly available.

Source: Inaugural report delay likely
A Federal Reserve source who spoke on condition of anonymity said that although the Fed plans to include the college card data in its annual report to Congress each April, this year’s inaugural compilation likely won’t be ready by then, given the CARD Act deadline and anticipated volume of issuer reports.

“We know we’re going to get a lot,” the source says. “A major issuer is going to have a separate agreement with possibly thousands of different institutions of higher learning, and while the terms may be fairly standard, we understand that the agreements are not identical, so we expect the volume to be pretty big. We haven’t set a firm date for issuing our [college card] report simply because we don’t quite know what we’re dealing with yet.”

The Fed source says college affinity card issuers must file one report that includes copies of each of its college affinity card agreements. Those that fail to do so would be in violation of Truth in Lending Act statutes and could be sued by individual cardholders for up to $5,000. Issuers without college affinity programs need not submit a report to the Fed.

Credit card reform arrives

The reporting requirement is piled on top of other substantial changes to how card issuers can market their cards on campus. When added together, the credit card law ends the era of readily available credit cards for students.

“It’s ugly out there for issuers,” the source says. “They have a lot to do between now and February 22.”

Alumni group must reveal deals
Can’t wait for that spring sunshine? You may not have to; the Credit CARD Act also requires alumni associations, which typically enter into affinity card agreements, to also make public the terms of their college card contracts if even one student has been issued a card.

Brian Flahaven, director of government relations for the Council for Advancement and Support of Education (CASE) that works on behalf of alumni associations, says the Act requires “dependent” alumni associations that are part of a college or university, as opposed to “independents” that are separate nonprofit 501(c)(3) organizations, to disclose the terms of their affinity card agreements on their websites, make it available upon request or both. For nonprofit “independents” or foundations, the onus is on the affinity card issuer to report to the Fed. Colleges and universities are under no obligation to report to the Fed, however.

“All of these agreements now are basically public documents” says Flahaven. “If the alumni associations have a confidentiality clause in their contract, obviously that has been trumped by the law.”

Flahaven says the disclosure requirements came as a shock to some of his constituents.

All of these agreements now are basically public documents. If the alumni associations have a confidentiality clause in their contract, obviously that has been trumped by the law.

— Brian Flahaven
Council for Advancement and Support of Education

“A lot of alumni associations were caught off-guard by this because they were thinking, ‘Hey, we don’t market to students!'” he says. “But all it takes is one student going to an alumni association website to apply for a card and you’re subject to disclosure.”

Some of the confusion stems from other sections of the Credit CARD Act that restrict on-campus credit card marketing to college students and impose new restrictions on issuing cards to persons under 21.

“The way the act defined ‘student’ was not age-based,” Flahaven notes. “It was about your enrollment in the institution. Even if [the cardholder] were over that age limit, that agreement would still be subject to public disclosure.”

Card-college deals proliferate
College affinity credit card programs have proliferated during the past 20 years, in part due to the popularity of college logos on everything from clothing and accessories to bank checks and auto insurance.

As the credit card industry matured, major issuers such as MBNA (now Bank of America) and Chase began to offer multiyear, multimillion-dollar deals to college and university alumni associations for the exclusive rights to market alma mater cards to its members. In exchange, the alumni association typically provides the issuer with personal contact information on students and alumni, as well as a menu of campus perks, from promotional event opportunities to stadium box seats.

Although fewer than 5 percent of college affinity cards are issued to undergraduates under 21, the secrecy of these affinity programs came under fire by consumer rights groups as they cataloged credit card industry abuses that ultimately resulted in the Credit CARD Act.

‘This is new to us’
At this point, how the Federal Reserve Board ultimately intends to use all that data remains partly cloudy.

“It’s sort of a strange thing because the statute doesn’t require us to do a lot in the way of analysis. Now the board could always choose to provide analysis, and we may well do that; that will sort of depend on what we see once we have the data,” the Fed source says.

“Are there benchmarks? No, nothing quite like this. The board collects information from lenders on a variety of subjects, but policy-wise, nothing really like this. This is new to us.”

The practice of card issuers paying colleges to allow credit card marketing is widespread, but largely secret. Some details of the agreements have been revealed by the institutions or pried free through Freedom of Information Act requests.
University of Iowa$1 million1
Iowa State University$500,0002
University of Michigan$2.5 million3
Georgia Tech$650,000 (est.)4
University of Georgia$1 million4
University of Virginia$475,000 (2002-2003)5
University of Delaware$300,0006
Ohio State University$1.2 million (2006)6
Florida State University$1.5 million6
Washington State University$320,0006
Sources: 1Des Moines Register, USPIRG study; 2Des Moines Register, Sept. 23, 2007; 3UM Daily, Feb. 16, 2009; 4Atlanta Journal Constitution, Sept. 5, 2009; 5Task force report, June 2004; 6Business Week, July 17, 2008 

See related:Credit card reform law home page, How card reform impacts young adults under 21, Law restricts on-campus credit card marketing to college students, Era of easy credit for college students ends

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