Credit card loyalties – alumni associations and colleges make $6.6 million
Last year, colleges in California, alumni groups, and university foundations made around $6.6 million in royalties, from the agreements they made with the card issuers. Over 3,000 new accounts were opened, as per the Federal Reserve Board report in July.
Under this agreement, banks could get exclusive access to market credit cards to the alumni groups as well as university students. Royalties are paid to universities and related organizations depending on the number of new credit card accounts that are opened.
There has been a decline in revenue from all these branded credit cards over the last year, according to the annual report. However, consumer advocates have stated that the decline was partly due to the CARD Act of 2009. The CARD Act had increased the transparency in these contracts and also put a cap on the distribution of freebies on the college campus, while marketing for the credit cards.
As per the law, credit card issuers are required to submit a copy of the college credit card agreement that is drawn up with any alumni organization, institute of higher education, or any affiliated foundation. This has to be submitted annually and the board maintains a database of these contracts.
Ed Mierzwinski, who is the director of the program for US Public Interest Research Groups, states that the colleges will have to give these things a serious thought as they are risking their reputation by collecting money from credit card issuers in exchange for access to the undergraduate students, who are the responsibility of the college.
Although, the new federal law does offer protection to students, the regulators should take adequate measures to analyze over 1,000 credit card agreements, states Mierzwinski.
The largest payments were made by the credit card companies to UC Berkeley’s Cal Alumni Association and USC, and they were among the ten agreements that made the largest payments in California. The most lucrative deal that generated $4.3 million was from the Penn State Alumni Association’s contract. In 2010, the California Alumni Association had received $1.4 million from the agreement with the FIA Card Services, which is a subsidiary of Bank of America Corp. for every credit card account that is opened; the alumni association will get $1, and a percentage of the transaction dollar volume.
There is a similar royalty arrangement between USC in its contract with the FIA Card Services, where the university will have to give banks the mailing lists of staff, students, etc., along with their phone number and email IDs.
