Come Clean on Credit Card Deals, Bob?
Business Week has an interesting recent article on the disturbing connection of credit card companies to universities and alumni associations. Anything to make money?
The College Credit-Card Hustle
How universities and alumni associations profit by marketing undergrads to financial giants—like Bank of America
by Jessica Silver-Greenberg and Ben Elgin
Universities and their alumni associations have discovered an unlikely and disturbing source of revenue: Increasingly, they are selling students' personal information to big credit-card companies eager for young customers.
Using state public disclosure laws, BusinessWeek has obtained more than two dozen confidential contracts between major schools and card-issuing banks keen to sign up undergraduates with mounting expenses for tuition, books, and travel. In some instances, universities and alumni groups receive larger payments from the banks if students use their school-branded cards more frequently.
The growing financial alliance between schools and banks raises questions about whether universities are encouraging students to incur additional high-interest debt at a time when many
Young people graduate from college owing tens of thousands of dollars. Most undergraduates lack substantial income of their own and are especially vulnerable to late fees and other penalties if they fall behind on monthly payments.
BusinessWeek's investigation parallels a separate probe by New York Attorney General Andrew Cuomo. He is looking into a range of relationships between schools and financial institutions. "It seems that the schools are simply selecting the university credit card based on who pays the school the most, and that may not be best for students, especially in these hard economic times," says Benjamin Lawsky, a Cuomo aide. Last year, Cuomo cracked down on ties between colleges and private tuition lenders, some of whom were paying schools to promote them to financially strapped students.
Some of the country's best-known and largest schools have multimillion-dollar credit-card deals, including the Universities of Michigan, Minnesota, and South Florida. Private schools also have these typically secret deals, but information about public institutions is more readily obtainable under disclosure laws.
Some campus card deals spell out in detail how schools will help market to their students. The University of Minnesota promises to push a school-branded JPMorgan Chase (JPM) card "in all University retail and athletic venues." The university says it will employ "in-store signage" and "in-bag credit card applications" at campus stores. The school gets $1 for each new cardholder and $3 annually for each active card user, in addition to 0.5% of every purchase made with the cards.
[Note added: At first this claim seemed a little strange to me... I visit the U of M bookstore in Coffman a lot. And I don't ever recall getting a solicitation for a credit card - "in bag credit card application." I just - 10July08 - spoke with some student check-out people as well as a management type in the bookstore and they said that they were not aware of any credit card applications ever being distributed by this mechanism. Maybe it is in the contract but the U of M is not doing this?]
Creola Johnson, a law professor at Ohio State University who has studied campus credit cards, says: "It is unethical for schools to allow a sophisticated industry to have access to their students, [many of whom] have graduated from high school without any financial education or literacy....The playing field is grossly uneven." Ed Mierzwinski, consumer program director for U.S. Public Interest Research Group, a liberal nonprofit in Washington, faults schools and alumni groups for failing to use their clout to gain better terms on cards for students.