Credit Card Companies Pay Millions to Colleges

Federal Reserve report documents $83.5 million in payments to campuses, alumni groups and foundations in 2009.
October 26, 2010

Credit card companies made more than $83 million in payments to colleges and their alumni associations and foundations in 2009 as part of agreements that allowed the companies to make their cards available to students on the institutions’ campuses, the Federal Reserve said in a report Monday.

The report, which was mandated by the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”), offers the first broad look at the arrangements by which credit card companies market their products to students, alumni and others, with the help of postsecondary institutions and their affiliates. The 2009 credit card law imposed restrictions on such arrangements going forward, but also required significantly more reporting about the nature and extent of the agreements.

The Federal Reserve’s Board of Governors said its report was designed to provide information to the public about agreements that “provide for the issuance of credit cards to college students," although the report acknowledges that some of the agreements may include payments for “other financial products,” and for accounts opened by alumni, employees or other non-students.

Seventeen financial institutions reported a total of 1,044 college credit card agreements in 2009, resulting in payments of $83,462,712 to colleges and universities and their supporting organizations. About 40 percent of the agreements were with colleges and universities, 33 percent with alumni associations, and the rest with foundations and other groups. The companies reported opening 53,164 new accounts in 2009, and maintaining a total of 2,008,714 accounts in all as of Dec. 31, 2009.

An affiliate of Bank of America accounted for an overwhelming majority of the total. FIA Card Services reported having 906 agreements, for a total of 1.6 million accounts, and making payments to institutions of nearly $62 million. Chase Bank and U.S. Bank made payments to institutions totalling $13.9 million and $2.5 million, respectively.

The recipients of the largest payments from the companies were the University of Illinois Alumni Association ($3,272,457), the Penn State Alumni Association ($2,835,000), the University of Notre Dame ($1,860,000), the University of Wisconsin Alumni Association ($1,652,449) and the Golden Key International Honour Society ($1,540,442).

While the nature of the agreements varies to some extent, many of them restricted the universities from promoting the products of other financial companies, and universities agreed to make mailing lists of students available to the companies. Copies of the agreements are available on the Federal Reserve’s website.

The Student Lending Analytics blog, which first reported on the Fed's report, offered this analysis: "The structure of these deals allowed schools to benefit as more students signed up for the cards and the higher their volume of transactions the higher the royalty that schools would receive. Should we be surprised that students had on average 4.6 credit cards and seniors graduated with average credit card debt of $4,100 based on a Sallie Mae 2009 study?"


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