B of A Made $62 Million In Payments To Colleges For Credit Cards in 2009: Federal Reserve

Here is a link to the report released today by the Federal Reserve.  Here are the highlights:

• Reviewed over 1,000 agreements between colleges and credit card companies (from press release):  "The Federal Reserve Board on Monday released a report that contains payment and account information about more than 1,000 agreements between credit card issuers and institutions of higher education or affiliated organizations that provide for the issuance of credit cards to students."
  • A few caveats to the data collected:  "...payments made by issuers under these agreements may not be based solely on credit card accounts.  In addition, some or all of the accounts opened pursuant to these agreements may have been opened by individuals who are not students (such as alumni, faculty, and staff of an institution of higher education). Furthermore, card issuers’ submissions do not include information regarding credit card accounts opened by students independent of these agreements (such as when a student responds to an offer made to the general public).  The Board also notes that, because issuers were required to submit all college credit card agreements to which they were a party at any time during 2009, issuers’ submissions may include agreements that terminated in 2009 or 2010, and therefore are no longer in effect."

• Three credit card issuers accounted for over 96% of the volume (note that Bank of America accounted for 87% of agreements and 74% of payments to schools):
  • Bank of America:  "...a subsidiary of Bank of America Corporation, submitted 906 college credit card agreements, more than fifteen times as many as any other card
    issuer. In 2009, FIA made payments totaling $61,968,307 to institutions of higher education, affiliated organizations, and other organizations, and opened 38,610 new accounts under its college credit card agreements. As of December 31, 2009, FIA had a total of 1,605,969 open college credit card accounts pursuant to these agreements."
  • U.S. Bank:  "U.S. Bank National Association ND (“U.S. Bank”) submitted 60 agreements, the second largest number of agreements submitted by a single issuer. Under these
    agreements, U.S. Bank made total payments of $2,502,744 to institutions of higher education, affiliated organizations, and other organizations, and opened 7,911 new accounts in 2009. U.S. Bank had a total of 122,163 open college credit card accounts pursuant to these agreements as of December 31, 2009."
  • Chase:  "Chase Bank USA, N.A. (“Chase”) submitted 36 agreements. During 2009, Chase made total payments of $13,892,863 to institutions of higher education, affiliated organizations, and other organizations, and opened 529 new accounts under these agreements. As of December 31, 2009, Chase had a total of 217,917 open college credit card accounts pursuant to these agreements.

• In terms of the organizations that the credit card companies had agreements with:
  • 40% were with institutions of higher education
  • 33% were with alumni associations (with over 50% of the open accounts with alumni associations)
  • 17% were other organizations

• Here are the ten largest payments by agreement by issuer (note that FIA Card Services is a subsidiary of Bank of America):

			2009	Total
Institution or Organization	Issuer	Payments	Accounts	Open. Accts.
University of Illinois Alumni Association	FIA Card Services	$3,272,457	330	25,528
The Penn State Alumni Association	FIA Card Services	$2,835,000	1569	74,832
University of Notre Dame du Lac	Chase Bank	$1,860,000	77	27,574
Wisconsin Alumni Association	FIA Card Services	$1,652,449	316	22,847
Golden Key International Honour Society	FIA Card Services	$1,540,442	399	38,692
University of Southern California	FIA Card Services	$1,502,850	659	21,824
Alumni Assoc. of the University of Michigan and the Regents of U. of M.	FIA Card Services	$1,500,000	947	38,358
University of Tennessee	Chase Bank	$1,428,571	9	10,963
The Greater University of South Carolina Alumni Association	Chase Bank	$1,425,000	1	6,964
Duke Alumni Association, Inc.	Chase Bank	$1,375,000	4	8,418
Totals		$18,391,769	4,311	276,000

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So, are you wondering what is in the agreements that determines payment to the schools or alumni associations?

To assist in this matter, the Federal Reserve provides a database to the actual agreements themselves.

I quickly scanned the agreement between FIA Card Services (Bank of America) and University of Illinois Alumni Association.  Here is what I found:

• Agreements actually date back to 1995 with MBNA America (precursor to FIA Card Services)
• Page 65 of PDF:  University cannot endorse any financial service products of any entity except MBNA
• Page 67:  University of Illinois Alumni Association to provide mailing lists to the bank, including 430,000 friends, supporters and students of the University, 97,000 season ticket holders and 20,000 members of faculty and staff. 
• Page 68:  Bank gets nine contacts with the mailing list:  5 direct mail, 3 telemarketing and one additional contact during any 12 month period. 
• Page 77:  Alumni Association to receive 7 years of royalties from 2003 to 2009 starting at $2.35 million and ending at $3.25 million in 2009 with royalty guarantee of $20 million over the term of the contract. 
• Page 86:  Payments appear to be tied to new accounts opened ($1 per account), annual fee paid ($3 per account), retail transactions using specific card (0.20%) and cash advances (0.20%). 
• Page 88:  Clarifies and confirms that consumer deposit products are also covered under this agreement.  

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Concluding thoughts:

• These agreements clearly limited competition on college campuses for credit cards and other financial service products.  Let's hope that debit cards (see this post about Higher One) get folded into this disclosure regime on a go forward basis.  Credit card marketing will be limited on college campuses with the new CARD Act rules in place.  It's too bad they waited so long to put some sunshine on the issue. 
•  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?