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Thursday, June 10, 2010

Card Games

Credit-card campus "affinity programs" are nothing new, and they survived the legislative reforms that took effect this year. Affinity marketing has been the rage in many arenas since the 1990s.  Consumers are more likely to purchase a commodity if it is associated with their college or favorite baseball team. The marketing tactic is a proven winner.

In the wake of new disclosure requirements, the arrangements between banks and universities have been opened for inspection.  I was shocked, shocked, to see how these credit-card deals are structured.  The architecture and magnitude of the deals are striking, along with the fact that institutions are co-enabling marketing to their own students. (I erroneously thought that practice had ceased.)

See here for a brief overview from the San Francisco Chronicle.  (And here for the extended piece from the Huffington Post Investigative Fund.)  Something to chew on from the Chronicle piece:

Schools defend selling access to students and their contact information. Colleges say they use the money to grant more scholarships to students. Some also argue that credit cards help teach students fiscal responsibility.

Colleges and alumni associations are entitled to rewards for providing special access and information. Bank of America typically pays schools $1 for each student who opens a credit card account and keeps it open for 90 days, according to contracts reviewed by the Investigative Fund.

Some schools also can earn more as students rack up charges - and debt. The University of Oklahoma, among other schools, is entitled to receive 0.4 percent of all retail purchases made with student cards. Most contracts obtained for this story entitle schools to extra compensation when students carry a balance from year to year - up to $3 a card.

These arrangements offer significant sources of revenue for universities.

There's something unseemly about deals that benefit a university as students run up consumer debt.  The rationale offered by (unattributed) colleges that allowing students to run up debt will enable the university to provide more scholarships (implicitly reducing student loan debt) strikes me as a bit odd.  It may be true... but do we say that in polite company?  This may not be the view of every institution in this game, but this kind of relationship with banks makes all of the athletic deals look angelic.

Some universities have already started to re-work or cancel their arrangements due to the recent daylight.  I'll take a stand and say that this is probably for the best.  Student access to credit can be improved through other avenues.

Posted by David Friedman on June 10, 2010 at 11:53 PM | Permalink


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