WU cashed in on credit card sales to students, alumni

Stopped taking royalties on students’ cards after new disclosure law

| News Staff

Washington University had an agreement with Bank of America where the university received $3 for each card account opened by students, which was terminated in July 2009.

Washington University had an agreement with Bank of America in which the University received $3 for each card account opened by students. The agreement was terminated in July 2009.

Starting in 1997, Washington University gave Bank of America the names of students, alumni and others in the University community and received cash back when the bank sold University-sponsored credit cards to students and alumni.

But in July 2009, the University and Bank of America (BoA) changed that agreement. The University would no longer take money for every account sold to students, according to a copy of the agreement, which became publicly available last month.

The change to the agreement came three months after President Obama signed into law a bill requiring universities to disclose arrangements like the one the University had with Bank of America. Since the government released agreements last month, consumer advocates have criticized universities across the country for the agreements, saying they have been making money while setting up their students to misuse the credit cards. A recently released government report also shows the University took about $68,000 in royalties from BoA in 2009. Certain peer institutions took far more, in some cases more than $1 million, through similar agreements in exchange for giving banks access to mailing lists and marketing exclusivity.

In the original contract, which started in 1997, Washington University had to provide the names and contact information of at least 108,000 community members for BoA’s marketing purposes. Meanwhile, BoA paid the University $3 for each school-promoted, or “affinity,” card sold to students and alumni. Under the original contract, the bank also had to pay the University 0.4 percent of the value of all purchases students made using the accounts.

The University said it stopped including students’ names in the mailing lists sometime in the early 2000s. The University and BoA then changed royalty fees for student-bought accounts to zero in July 2009, effectively eliminating them. Royalty provisions in the contract now apply only for affinity cards opened by alumni. That change came after the federal government enacted the Credit CARD Act in May of that year, a credit-card reform law that, among other things, requires universities to publicly disclose the agreements they make with banks.

When asked how the agreement affects students, David Blasingame, executive vice chancellor for alumni and development programs, wrote in an e-mail that the affinity card is meant for alumni and the agreement does not apply to students. “Our contract with Bank of America does not apply to Washington University students, only to alumni,” he wrote.

University representatives didn’t respond to a question about why it removed the provision from the agreement in July 2009. But Pamella Henson, associate vice chancellor for alumni and development programs, did say Bank of America makes its affinity card offers based on the information the University provides. She said that students’ information used to be included, but hasn’t been included since the early 2000s, meaning the bank couldn’t have marketed the cards to students after that point.

After the U.S. Federal Reserve Bank issued a report in October showing the payments banks made to universities, commentators and consumer advocates accused universities of exploiting their students, making money as their students ended up with debt and bad credit from misusing the cards. This comes on the heels of a 2009 study by student-loan company Sallie Mae showing that the average college student graduates with more than $4,000 in credit-card debt.

Banks have responded that critics are blowing the issue out of proportion and that the affinity cards are targeted at alumni—not at students.

Student Life obtained a copy of the agreement between the University and BoA from the Federal Reserve. Universities and banks must give their marketing agreements to the Fed for public disclosure under the new law. In a recent report on universities’ agreements, the Federal Reserve predicted that banks and universities would change them in response to the new law: “The terms of some agreements may have been amended during 2010 as a result of new requirements imposed under the Credit CARD Act and the Board’s implementing regulations.”

The St. Louis Post-Dispatch first reported in late October that Washington University received $68,093 in affinity-card royalties in 2009 from FIA, the BoA subsidiary that markets affinity cards at the University. University community members opened 57 affinity cards that year, according to the Federal Reserve’s report, but there is no breakdown of students and alumni.

Among other schools, Emory University received more than $50,000 in 2009. Other university alumni groups received far more money. Northwestern University got $428,572, Duke University’s alumni group received $1.38 million, and Harvard and Cornell universities’ alumni groups pocketed $1 million and $901,900, respectively.

The University does not release how it uses its royalty money. Blasingame wrote that the money “is deposited into an unrestricted gift that supports University priorities.”

The University is renegotiating its contract with BoA, Blasingame added.

Consumer advocate Edmund Mierzwinski said that banks have targeted undergraduate students for overpriced credit cards that they might not be able to afford by taking advantage of university budget problems to get administrators to sign up.

Mierzwinski praised the University for eliminating the provision that requires BoA to give it money for each affinity card sold to students.

“Universities should have a best practice of eliminating undergraduate students from school-branded credit card marketing as Wash. U. has done,” said Mierzwinski, who is the consumer program director for Public Interest Research Group, a Washington, D.C., consumer advocacy group.

Columnists such as The Washington Post’s Michelle Singletary have also argued that credit-card-marketing agreements between banks and universities often are not made in students’ best interest. “Schools also can’t conclude a deal in which the school earns a percentage of finance charges imposed on students,” she wrote in a recent column. “If a school currently has such an agreement, it must stop accepting payments immediately.”

Bank of America spokeswoman Betty Riess said that BoA has not singled out students. She said the bank has been targeting alumni and added that about 98 percent of affinity cards are bought by non-students. The bank doesn’t break down the numbers by school, she said.

“We do not market to students on campus and have not done so for some time, even before the CARD Act,” she added. “We have been amending agreements over the past few years to exclude student names from marketing lists provided by the schools.”

The relationship between BoA and Washington University extends past the range of this contract. After the bank donated more than $1 million to the school in 1998, the University established the position of Bank of America Professor of Managerial Leadership. Further, University trustee James Hance was chief financial officer of BoA from 1988 until 2004 and vice chairman between 1993 and 2005.

Retired BoA Professor of Managerial Leadership Stuart Greenbaum said he doesn’t believe that the ties to BoA are linked in any way.

“As far as I know, there’s zero connection between my chair and this affinity agreement,” Greenbaum said. “And Hance is an alum of the business school. I didn’t know him as an officer of Bank of America.”

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