Credit-Card Companies Paid Colleges $84-Million for Cards Issued to Students and Alumni

October 26, 2010

Credit-card companies paid $83.5-million to colleges, their foundations, and alumni organizations last year under agreements that allow them to market credit cards to students and alumni, according to a report released on Monday by the Federal Reserve Board.

Under the Credit Card Accountability Responsibility and Disclosure Act of 2009, credit-card issuers are required to submit their agreements with colleges and related organizations—contracts that were previously kept private—to the Board of Governors of the Federal Reserve. They must also disclose how many accounts were opened in a year and the total number of open accounts.

The board examined 1,044 contracts involving college groups from 17 credit-card companies and found that 53,000 accounts were opened in 2009. Two million such accounts remained open at the end of 2009. The account holders represent college students and alumni, as well as faculty and staff members, the Federal Reserve said.

The largest share of agreements—40 percent—were directly with colleges. Thirty-five percent were with alumni associations, and 27 percent were with foundations or other affiliated organizations.

Almost half of all new accounts—25,900 in total—were opened through alumni associations, and those organizations represented six of the 10 groups paid the most by credit-card companies.

The organization with the most accounts, the Penn State Alumni Association, had just under 75,000 (1,569 of which were opened last year). It was paid $2.8-million in 2009. The University of Illinois Alumni Association received the most money from a credit-card company, about $3.3-million. About 87 percent of all contracts were with FIA Card Services, a subsidiary of Bank of America.

Terms of the agreements varied between organizations. Compass Bank paid $150,000 to Crimson Tide Sports Marketing, an affiliate of the University of Alabama at Tuscaloosa, though the bank has not yet opened any credit-card accounts through it. U.S. Bank National Association did not pay the Baylor University Alumni Association anything in 2009, even though 362 new accounts were opened under their agreement. Details of each agreement can be found in a new online Federal Reserve database.

The agreements, especially ones that involve marketing credit cards to students, have been criticized by people concerned about student privacy or debt levels. An examination this year of 17 contracts found that they required colleges to provide personal information about their students and, in some cases, paid the institutions extra when students carried a balance on their cards. In New York, Attorney General Andrew M. Cuomo has opened an investigation into "deceptive credit-card-marketing practices" that includes every college in the state.

The Federal Reserve's report will be published annually. It will become the responsibility of the newly established Bureau of Consumer Financial Protection in mid-2011.