Credit card companies are still aggressively hawking cards to college students and alumni, but in the face of new transparency and regulation, the schools' lucrative, once-secret marketing deals are beginning to go into decline, according to a Federal Reserve report issued Thursday.
Card issuers' payments to the school groups fell 13%, from $84.5 million in 2009 to $73.3 million in 2010. The number of agreements declined slightly, to 1,004 from 1,045. And the number of credit card accounts generated by these agreements fell by a sharp 17%, to 1.7 million from about 2 million.
The results suggest that credit card issuers that are active on campus are running into strong headwinds produced by a variety of factors, not least of which is the transparency now being produced by the annual Federal Reserve reports.
CARD Act forced sunshine
Required by the Credit CARD Act of 2009, the reports reveal the mammoth extent of on-campus credit card marketing efforts -- and the huge payments made by card issuers to universities, colleges, alumni groups and other entities affiliated with the schools. Until the law passed, the agreements had been shielded from view by confidentiality clauses written into the contracts. The report issued Thursday summarizes the agreements as they were at the end of 2010, and makes the agreements themselves available via a searchable database. It's the second such report required under the law; the first, covering 2009, was issued last October and raised eyebrows among consumer advocates and some college officials.
Joe Pavel, a spokesman for the Federal Reserve, declined to draw any conclusions from the latest report. "We'll let it speak for itself," Pavel said.
Others, however, said the report suggested that consumers -- particularly young consumers -- were benefiting from additional information and protections.
"The main thing we can conclude is that specific college agreements have finally made it onto the radar screen of college leaderships and some of them are taking a hard look at whether to allow the marketing of these cards to undergraduates," Ed Mierzwinski, consumer program director for U.S. PIRG, a Washington, D.C.-based federation of state public interest research groups, said Thursday.
He and other critics of the campus marketing programs say the tactics can lure undergraduates into credit arrangements for which they are not yet emotionally or educationally prepared, often trapping them -- or their parents -- in deep pools of debt. Credit card issuers say that college students can be well served by building early and healthy credit histories, and that many of these marketing efforts are focused on alumni and other interested parties rather than undergraduates.
The CARD Act changed the rules for marketing to college students, requiring issuers to confirm that a student younger than 21 had income to pay the card bill, and banning some marketing practices, such as offering pizza and T-shirts in exchange for filled-out applications.
As was the case in 2009, FIA Card Services -- a unit of the Bank of America -- was by far the most active card issuer under the agreements with colleges and affiliated groups. The firm reported agreements with 848 schools, fraternities, sororities, alumni groups and similar entities in 2010. Though down somewhat from the 906 contracts FIA reported in 2009, the number still accounted for nearly 85% of the 1,004 contracts reported by all 21 issuers last year.
Betty Riess, a Bank of America spokeswoman, did not immediately respond to a request for comment Thursday. But last year, she denied that the bank trains its sights on undergraduates.
"Students have never been the target market for these cards," she told CreditCards.com in October 2010. "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% 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," she said then. "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 Bank of America unit reported paying fees of $55.59 million last year for the right to market university and college affinity accounts. It opened 30,193 new accounts of that nature, giving it a grand total of 1,445,088 campus-related affinity accounts. Filling out the top five issuers -- but also landing far behind the Bank of America unit's 848 agreements -- were U.S. Bank National Association (54 agreements), Chase Bank USA (28), UMB Bank (23) and the Pennsylvania State Employees Credit Union (13.)
Though credit card issuers said they were focusing their efforts on alumni associations and other groups of older potential account holders, contracts with universities and colleges (374) still outpaced those with alumni associations (364) last year. That said, the number of contracts with schools dropped by 9% from 2009, while the number of contracts with alumni groups rose by 5%, additional evidence that some university and college boards of trustees were taking action to curtail marketing to students.
"I think a number of boards of trustees might have had questions during this past year," Mierzwinski said. "Questions like, 'Why are we marketing these cards?' "
Alumni associations top beneficiaries
As a result, alumni associations accounted for seven of the top 10 beneficiaries of these payments by credit card issuers, including the Penn State Alumni Association ($4.29 million), University of Texas alumni ($2.36 million), University of Michigan alumni ($1.6 million), Duke alumni ($1.37 million), University of California alumni ($1.35 million), Arizona State alumni ($1.34 million) and the University of North Carolina Chapel Hill alumni ($1.25 million). The University of Southern California ($1.5 million) and University of Tennessee ($1.42 million) led the roster of university beneficiaries.
Typically, in return for these payments, credit card issuers harvested phone numbers, e-mail addresses and physical addresses of students, alumni and others. Generally speaking, the issuers also received access to campuses and/or the right to market cards in specific ways a specified number of times per year.
The Joe Paterno clause
The Penn State Alumni agreement, for example, lets MBNA conduct at least three direct mail and three email campaigns to everyone on the association's list each year, gives it sponsorship rights on association activities and plum seating at sporting events.
The agreement also contains a 2009 addendum calling for the school's famed football coach, Joe Paterno, to be paid $100,000 in exchange for signing 100 footballs and 25 helmets for the bank's use. He had in 2003 been paid the same sum for making a personal appearance for the bank.
"The bulk of the money that comes to the schools is from alumni use of the cards," Mierzwinski said. "But the banks often have sought undergraduate names because they want new blood, so we cannot conclude that banks are no longer marketing to young people."
Still, the report clearly shows that the issuers' task has become more difficult, due to the economy, the CARD Act and, perhaps most of all, to these annual disclosures now collected and reported by the Federal Reserve.
"We used to have to file Freedom of Information Act requests to get copies of these contracts and, even then, we often didn't get them," Mierzwinski said. "Now, we get these reports every year. Sunlight really is the best disinfectant."
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