Fed Report: Credit Card Issuers Heavily Solicit College Students, Alumni
Credit card companies paid more than $83 million to colleges and alumni groups and foundations in 2009 to solicit business, according to the Federal Reserve’s first annual report issued under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act).
The CARD Act requires credit card companies to disclose details on how much they pay to colleges for the rights to market their cards to students and alumni. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, responsibility for these annual reports will transfer to the newly established Bureau of Consumer Financial Protection (BCFP) on July 21.
The inaugural report stated the Fed received reports of 1,044 marketing agreements from 17 credit card issuers in 2009. These issuers paid $83.4 million to colleges and their related alumni organizations. A total of 53,164 new college credit card accounts were opened under these agreements. More than two million such accounts remain open.
Bank of America Behemoth
Bank of America dominated the college alumni market, according to the report. It submitted 906 college credit card agreements, more than fifteen times as many as any other card issuer. In 2009 it made payments totaling $61,968,307, an average of $68,398 per agreement. It opened 38,610 new accounts under its college affinity program.
"This first report underscores how important the college market and alumni associations are to credit card issuers," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
What is in it for credit card companies? Peter Garuccio, vice president of public relations at the American Bankers Association, says, "The banking industry, and the credit card industry in particular, is very competitive as card issuers challenge each other for access to the same wallets. But banks also realize that a credit card might be the first foray into the broader world of credit for young people, so they want the experience to be a positive one. A new customer that has had a good experience with their credit card issuer is more likely to turn to that issuer down the road when they have other financing needs, such as for the purchase of a car, a house, or funding for further education.”
He also notes some of the agreements between card issuers and institutions of higher education “also involve providing products and services beyond just credit cards [such as deposit accounts, etc.], so the money issuers are paying is not based just on credit card accounts."
Funds for Associations
So what’s in it for alumni associations? “These funds are used for things like scholarships, conferences, and community service recognition for and by our members,” says John Mitchell, CEO of the Golden Key International Honour Society.
Roger Williams, executive director of the Penn State Alumni Association, says, "The funds derived from these partnerships provide operating dollars to alumni associations to provide the programs, events, benefits, services, and communications that their members value and expect."
Jerry Sigler, CFO of the Alumni Association of the University of Michigan, adds, “The impact of the economy has dramatically reduced funding of alumni associations. . . . As a result, alumni associations have had to become much more entrepreneurial in their approach to funding programs that engage and connect alumni."
College Population Diversity
For students and alumni, there is the flexibility of being able to borrow money quickly and to establish a good credit history, which can save money down the road, says the ABA’s Garuccio. He also notes today’s college student population “is much more diverse than a bunch of 18-21 year old kids fresh out of high school. In fact, many college students attend only part-time, have full-time jobs, are married, have kids, etc. Also, studies indicate that more than half of college students are older than 22 and 40 percent are older than 25, while only 16 percent are full-time undergraduates living on campus."
For the arrangements to work, the alumni associations and foundations must provide certain information on their members to the credit card companies, raising some concerns about the use of private information of students and alumni.
"We provide mailing lists to our corporate partner in conjunction with our policies governing the use of mailing lists. We do not provide email lists or phone numbers,” says Penn State’s Williams. "Then the alumni, if they opt in to these programs, become customers of the bank that sponsors the credit card. Of course, the bank, if our alumni opt in, is free to probe for further information about their new customers."
Sigler of the University of Michigan Alumni Association receives fewer than a dozen complaints or requests to opt out of future mailings each year. “I don't consider that a significant number out of 480,000 alumni,” he says.
D. Brady Nelson (email@example.com) is an economist who writes from Milwaukee, Wisconsin.