Des Moines Register
09-23-07
U of I, Iowa State use student data to sell credit cards
By CLARK KAUFFMAN
REGISTER STAFF WRITER
Iowa's two largest public universities are aggressively marketing credit cards to
their students as part of an arrangement that generates millions of dollars for the
schools' privately run alumni organizations.
Publicly, the University of Iowa and Iowa State University have expressed
concern over the debt of their students, many of whom graduate with $25,000 to
$30,000 in bills to pay. The schools say they are trying to reduce that debt load.
At the same time, however, the two schools have signed deals with their alumni
associations in which they have agreed to endorse, promote and profit from Bank
of America credit cards marketed directly to students.
Records obtained by The Des Moines Register also show that the U of I has
agreed to give the bank access to databases that include the mailing addresses,
telephone numbers and e-mail addresses of students, parents and people who
buy tickets to Hawkeye football and basketball games. The university has also
promised to provide its biggest-spending cardholders with exclusive access to
university facilities, coaches and even student athletes.
The practice is part of a widespread but increasingly controversial effort by
colleges and universities nationwide to form partnerships with for-profit lenders.
In Iowa and most other states, the financial details of those partnerships are
often shrouded in secrecy, despite the involvement of public universities that rely
on taxpayers to provide a substantial portion of their operating revenues.
Nationally, consumer advocates and state legislators are protesting such
activities. Federal legislation to curb on-campus marketing of credit cards is
under consideration, and U.S. Senate hearings are expected this fall.
"We're very concerned about these exclusive contracts that provide kickbacks to
the universities," said Ed Mierzwinski of the Public Interest Research Group. "We
want colleges to be responsive to their students."
University and alumni association officials say the millions of dollars they collect
through the credit card deals benefit the schools and their students.
"Whether you say 'kickbacks' or you say 'royalties,' we've been upfront with our
constituency, and we share with them how we're using those dollars," said Jeff
Johnson, president of the Iowa State University Alumni Association. "We
have a commitment to student leadership and student scholarship."
U of I officials say there are 208 students actively using the U of I credit cards,
and the average balance is $1,028.
At ISU, there are 289 students with active cards, and Johnson said their average
balance is about $389.
"Most of our students arrive on campus already carrying a credit card," Johnson
said.
Schools' promoter role troubles critics
Consumer advocates acknowledge that alumni, rather than current students, are
the primary target of credit card companies and the universities' marketing
efforts.
But those advocates contend the schools are also facilitating on-campus
marketing aimed directly at students who have limited income and are struggling
with debt from student loans. They say public assets are being used to enrich
corporate lenders and privately run alumni groups.
At the Register's request, Mierzwinski, the Public Interest Research Group
official, reviewed the available contracts involving the two Iowa universities' credit
card programs.
He said the agreements illustrate "a big-bank strategy to gain the exclusive right
to peddle high-priced credit cards" to students at the schools.
"Nothing in these contracts provides for any significant restrictions on campus
credit marketing practices, nor on the rates charged on student cards," he said.
"These flaws all require changes if students are to be protected from predatory
financial practices."
U of I alumni officials declined to say how much they are paid through their
arrangement with Bank of America. Also, the bank declined to comment on its
partnerships with Iowa schools.
But federal records show the University of Iowa Alumni Association was
collecting $550,000 per year from MBNA, now Bank of America, through 2005.
Under the terms of the association's newest contract with the bank, the school is
guaranteed at least $200,000 per year - all of which is to go to the athletics
department.
Some of that money is considered payment for eight club seats at every Kinnick
Stadium football game through the 2012 season. At today's prices, those seats some of which are used by Bank of America representatives - would have a total
value of $145,600.
Chris Bavolack, vice president of the U of I alumni association, declined to
comment on the revenue-sharing deal that results in the association collecting
additional money as cardholders' debt loads increase. Typically, though, such
arrangements result in alumni groups collecting 20 to 50 cents for every $100 of
credit card purchases.
Bavolack said the association's most recent annual audit report should be
completed and made public in a few weeks. Although that document will not spell
out the terms of the deal with Bank of America, he said it will show how much
money the association collected from the lender last year.
The ISU alumni association stands to collect at least $500,000 annually from
Bank of America through 2012. As part of that deal, the school receives an
annual guarantee of $40,000 to $42,000, and all of that goes to the athletics
department.
The University of Northern Iowa Alumni Association refused to make public its
contract with Bank of America, but association President Mark Jastorff said there
have not been any association-endorsed solicitations aimed at students, directly
or indirectly, over the past six months.
"We do not do that," he said. "Credit woes are a serious issue, and they affect
students as much as anyone else."
One sales pitch: 'Pay for your books'
The sales pitch that arrives in students' mailboxes in Iowa City is written on
alumni association letterhead that includes the trademarked logo of the U of I.
The letter is signed by Vince Nelson, president of the U of I Alumni Association.
It begins: "Imagine the convenience of being able to purchase supplies for your
classes without worrying about carrying a lot of cash. You could pay for your
books - or get quick cash in an emergency - and put it on one easy-to-use
account. That's the kind of flexibility every student can appreciate and it can be
yours with the University of Iowa credit card."
Nelson's pitch also includes this postscript: "Bank of America helps support the
University of Iowa with every account opened, and for every purchase made with
the card. All at no additional cost to you."
Actually, the support flows both ways.
Although the bank has contracted only with the alumni association, and not
directly with the school, the association has signed a contract with the school
committing the university to "creatively and aggressively" marketing the Bank of
America card.
As part of that agreement with the association, the university has promised to
provide Bank of America with lists of all people who purchase season or single
tickets to athletic events - a list that would include students, parents and other
supporters.
Separately, the school has also agreed to provide, for Bank of America's use,
electronic lists containing the phone numbers, e-mail addresses and mailing
addresses of students and their parents, assuming the students didn't ask that
access to the information be restricted. Alumni officials say no information on
parents has been provided to Bank of America so far, but they expect the
information could be provided later this year.
The deal authorizes the university to play a direct role in signing up new
cardholders by pitching new accounts to students and others attending various
athletic events. In return for every new account opened as a result of the
university's sales pitches, the school collects $50.
The agreement obligates the university to help sell the credit cards through
public-address announcements during games at Kinnick Stadium and CarverHawkeye Arena. Card applications are mailed to buyers of sporting-event tickets,
and the cards are promoted in advertisements during the coaches' weekly TV
shows.
At ISU, interest rates higher for students
The ISU alumni association has been in the credit card business for 19 years. In
1995, the organization signed a deal with MBNA to market ISU-branded credit
cards on the university campus for five years.
Under the terms of that deal, the alumni group received $750,000 in royalties,
plus a $30,000 signing bonus, plus $1 for every new account that was opened,
plus $1 for every card that maintained a balance of more than zero.
The contract called for student cardholders - typically a high-credit-risk group - to
be charged a higher interest rate than alumni. Students would pay a rate equal to
the prime interest rate, plus 9.9 percent. Alumni cardholders would pay 7.9
percent.
In 1999, the deal was renegotiated and extended through 2005. Royalties to the
alumni were increased to $5 million - with $4 million of that paid upfront as an
advance.
At the same time, the university got involved in the deal.
The athletics department agreed to exclusively endorse the credit card program
at athletic events and agreed to give the bank, free of charge, the names and
contact information of season- and single-game-ticket holders.
The school also agreed to give the bank exclusive on-site access to students and
fans at athletic events. The company could set up booths and tables to sign up
cardholders at football and basketball games. To help with the "Charge it to Cy"
campaign, the school authorized the bank to give T-shirts, hats and bobbleheads
as gifts to new card applicants.
When the contract was renegotiated in 2004, Johnson, the alumni association
president, sent a memo to school officials, saying he was excited about "a more
active partnership with the school" and the "chance to increase the number of
active card users and carriers, thus yielding increased revenues."
As part of that new contract, the bank agreed to give the school $75,000 to help
renovate a campus building. In return, the school promised to give the bank
"permanent named recognition of its gift" inside the building.
The alumni association promised Bank of America that it would arrange with the
nonprofit, tax-exempt Iowa State University Foundation to solicit interest in the
credit card program during its fundraising campaigns.
The new agreement also resulted in a decrease in the alumni group's share of
revenue: The royalty payments were reduced to $3.5 million, and the schools'
share of revenue from cardholders' charges dropped from 40 cents per $100 to
20 cents.
Free burritos - for Citibank application
It's impossible to say whether the credit card programs at the U of I and ISU are
consistent with arrangements at other U.S. colleges and universities. Few
schools publicly disclose the terms of their credit card agreements.
One exception is the University of Tennessee, where the student body is similar
in size to those of ISU and the U of I. The Tennessee alumni association expects
to collect $9.8 million over seven years in return for an exclusive marketing deal
with Chase credit cards. A previous agreement with FirstUSA generated $16.5
million over seven years.
Mierzwinski, the Public Interest Research Group official, contends that despite
the big money that can be made, colleges and universities should not engage in
on-campus marketing of credit cards.
He says school-sponsored giveaways to new account holders - which sometimes
include offers of free food or clothing - are calculated to turn what should be a
carefully considered financial decision into an impulse purchase.
Not all the giveaways are school-sponsored. Last week, the Ohio attorney
general sued Citibank after fast-food restaurants distributed fliers at Ohio State
University, offering students free burritos and sandwiches. What the restaurants
failed to advertise was that the students needed to complete an application for a
Citibank credit card to get the free food.
Earlier this month, hundreds of University of Minnesota students flocked to a
Domino's Pizza store after being promised a free meal. Once there, students
were told they needed to fill out a Citibank credit card application. The
restaurant's manager told the student-run Minnesota Daily that 800 to 900
students took advantage of the offer.
Robert Manning, a professor of consumer finance at the Rochester Institute of
Technology, has testified before Congress several times about on-campus
marketing of credit cards.
He says such programs increase the likelihood of students failing to complete
school. He faults school administrators for having a "greater interest in increasing
credit card royalties than in fulfilling their responsibility to ensure the graduation
of their students with the lowest possible level of financial debt."
Using a credit card to pay for textbooks and class supplies can be risky, too. The
U of I card offered to students has an interest rate that can balloon to 29.99
percent in the event of a single late payment. Such provisions are not unusual,
but students are a transient group, with frequent mailing-address changes that
can cause delays in delivery of credit card bills.
Lawmakers consider protecting students
Lawmakers in five states have proposed legislation this year to curb credit card
marketing to students.
Two weeks ago, California enacted a law that restricts some of the same
practices now being used on the U of I and ISU campuses, such as handing out
T-shirts or other gifts to credit-card applicants at school events.
Three weeks ago, lawmakers in Texas approved legislation restricting the time
and place where such gifts can be handed out. Proposed legislation in Oklahoma
would have barred universities from selling student information to credit card
companies.
Some schools are not waiting for legislative action.
Three years ago, the alumni association at Graceland University in Lamoni
contracted with MBNA to create a Graceland credit card. But that deal put
Graceland students off-limits to any solicitations.
Although Graceland is a private school and is not subject to Iowa's open records
law, that alumni group publicly disclosed the financial details of the arrangement
with MBNA after the deal was completed.
"We don't bring credit card solicitors onto campus, and we don't put solicitations
into student orientation materials," said Sherry Morain, Graceland's director of
financial aid. "We don't need to be pushing these on students. They get enough
information on credit cards as it is."
Reporter Clark Kauffman can be reached at (515) 284-8233 or
ckauffman@dmreg.com