Higher Ed | Daily Report

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California colleges, alumni associations and university foundations made $6.6 million in royalties last year from agreements with college credit card issuers, with more than 3,000 new accounts opened, according to a July report from the Federal Reserve Board.

Under the agreements, banks typically get exclusive rights to market credit cards to university students and alumni, and they pay royalties to the universities or related organizations based on the number of new credit card accounts opened. 

The annual report shows declines in revenues from these branded credit cards since last year. Consumer advocates say that decline is partly due to the federal Credit Card Accountability, Responsibility and Disclosure Act of 2009, which increased transparency in the contracts and limited the use of free gifts in on-campus credit card marketing. 

The law requires credit card issuers to annually submit to the board a copy of any college credit card agreement with an institution of higher education, alumni organization or affiliated foundation. The board maintains a database of the contracts.

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"Colleges have to think about these contracts and the reputational risk of collecting money from credit card companies and allowing access to their undergraduates, who they have some responsibility for," said Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Groups.

Still, while the new federal law is a major step toward protecting students, regulators could do more to make the more than 1,000 credit card agreements easier to analyze, Mierzwinski said.

In California, contracts with USC and UC Berkeley's Cal Alumni Association were among the 10 agreements with the largest payments by credit card issuers. The Penn State Alumni Association's contract was the most lucrative in the nation, generating $4.3 million.

The California Alumni Association received $1.4 million in 2010 from its agreement [PDF] with FIA Card Services, a subsidiary of Bank of America Corp. The alumni association gets $1 for every credit card account opened, plus a percentage of transaction dollar volume.

USC has a similar royalty arrangement, and its contract [PDF] with FIA Card Services says that within 30 days of a bank request, the university must give the bank mailing lists for alumni, faculty, staff, fans, ticket holders, donors, undergraduates and graduate students. The lists include postal addresses, telephone numbers and e-mail addresses.

Even before the federal Credit CARD Act passed, California enacted legislation in 2007 that pushed for more transparency in the contracts and limited on-campus marketing. Preeti Vissa, community reinvestment director for the Berkeley-based Greenlining Institute, which sponsored the California law, said the federal law went further to protect California students.

Still, Vissa said, "it's really quite a pity that our universities have had to resort to these predatory lenders to get revenue."

Both Mierzwinski and Vissa have high hopes for the newly formed Consumer Financial Protection Bureau, which will be enforcing the Credit CARD Act. 

While the Federal Reserve Board tallies the number of new accounts and payments to universities and related organizations and also posts the contracts online, it does little to analyze the contracts or provide recommendations for improvement, Mierzwinski said. He hopes the Consumer Financial Protection Bureau will do that. 

The way the contracts are posted, it's difficult to compare royalty arrangements, mailing list agreements or marketing practices from one university or alumni group to the next. The data also doesn't indicate how many cardholders are undergraduates, as opposed to alumni, faculty or staff.

"You make the most money on alumni; they use the cards the most," Mierzwinski said. "But undergraduates are the holy grail because the chances are, you’re getting the first card into their wallet, which will be one that they will keep."

Here's a look at royalty payments and credit card accounts by university or related organization in California:

Source: Federal Reserve Board