Sunshine on College Credit Card Contracts

Though computers and e-mail were widespread by the time I entered college in the fall of 2003, the major throwback to increasingly outdated technology was a landline phone number that my school provided to everyone who lived on campus. Because cell reception in my freshman dorm was pretty spotty, my roommate and I decided it made sense to get a cordless phone to use from time to time.

The phone mostly went unused through the first few months of the semester, but we suddenly started getting a constant barrage of phone calls, starting at the inconvenient for college student hour of 9 a.m. and continuing throughout the day. What was strange was the person on the other end always knew to ask for either my roommate or myself–something I found curious since the numbers are randomly assigned to new people each year and we’d only had the number a month or two.

That man was a credit card salesman, peddling something called Clout Visa, a product with mediocre terms designed for high school and college students with little credit history. I wasn’t particularly interested in signing up for a credit card, but the calls became so frequent and annoying that I eventually gave the guy some information (on-campus mailing address, not my social security number) on the hopes that he would just stop calling. A few weeks later, I got a credit card in the mail, which I promptly tossed out, and the calls stopped.

Fast forward a few years and I needed to pull a credit report for potential landlords. And lo and behold, there at the very bottom was a line for a Clout Visa card that I had apparently opened with a credit limit of $500 or something like that. I’d never activated the card or used it, but I sure enough had signed up and received it.

What I’ve always wondered about that is how did the salesman know I was at that number? Directory information wasn’t public and I highly doubt he had a school login to see internal numbers.

Stories like the must-read spread that graced the front page of the Huffington Post this morning provide one chilling possible answer: my school had sold my name and information to a credit card company.

With the teaser headline of “Universities Make Millions Secretly Selling Student Info,” the piece lays out a number of the credit card deals that colleges have entered into with large banks over the last decade. At my alma mater, it was a seven year deal worth $2.3 million. At the substantially larger University of Michigan it was $25.5 million over 11 years. In the most odious cases, such as the University of Oklahoma, colleges actually receive a portion of student charges and get bonuses if students carry a balance. That’s right—a direct incentive to get students into debt.

Overall, HuffPo’s findings about these deals aren’t pretty:

Sell students’ personal information. Many are contractually obligated to share students’ names, phone numbers and addresses with banks.

Earn royalties: Banks typically pay schools $1 for each student who keeps a credit card open for 90 days. When students carry a balance, some schools can collect up to $3 more per card.

Cash in each time a student uses plastic: Many schools are entitled to receive 0.4 percent of all retail purchases made with student cards.

Benefit from marketing incentives: When a university or alumni association agrees to market cards to students itself, the payoff is greater — sometimes up to $60 for each card opened through a school’s own marketing.

Offer special perks: Banks sometimes gain special access to athletic events. Cornell University must provide Chase Bank with tickets and “priority” parking passes at football, basketball, hockey and lacrosse games.

These questionable deals between colleges and credit card companies are nothing new. BusinessWeek in particular has done great work on this issue in the past (see here and here) as has the Des Moines Reigster (here), which caused the University of Iowa to change its credit card deal after exposing its terms a few years ago.

What makes these new disclosures noteworthy is that they are aided by a provision authored by Rep. Patrick Murphy (D-Penn.) in a credit card bill from last year that requires colleges and their alumni associations to disclose the terms of their credit card deals with banks. In addition, banks must disclose all of their deals to the Federal Reserve Board, which will publish them in an annual report.

Unfortunately, we don’t have a full picture of all the deals yet because the Federal Reserve report hasn’t come out yet and colleges can take a long time to make deals available upon request. But the extent to which even some public pressure can affect these deals is striking:

This spring, Columbia University, the Iowa State University alumni association and Michigan State University all amended their affinity agreements to prohibit any marketing to students. They did so within a week of receiving phone and email inquires from the Investigative Fund. School officials said they had been working on the amendments for months.

While credit card debt is not as large a concern as say student loan debt, it’s not insignificant. A 2008 study (PDF) by the U.S. Public Interest Research Group found that students who carry a balance on their credit card typically owe between $1,300 and $2,600. College is expensive enough, the least universities could do is not engaging in even more practices that help get their students into debt.

Tagged as: Credit Cards, Huffington Post, student debt