Well, it is if you’re a student from Catholic or American who got a branded credit card. Otherwise it’s just your debt.
The CARD Act passed Congress last year and requires higher education institutions to disclose the terms of their agreements with credit card providers when they involve promoting credit cards to students. There’s an online database you can search now to find the terms of those agreements and what money the institution is pulling in as a result. I’m not examining the deals from Baltimore – John’s Hopkins, Notre Dame of Maryland, Loyola – so I can focus on our area. The only schools in our area making a deal for their current student’s information are American University and Catholic University in the District and Marymount University in Arlington.
That’s not because they’re necessary less ethical than George Mason University or University of Maryland – those institutions, being public, are bound differently by FERPA and can’t legally make this sort of deal for an enrolled student’s info. Georgetown and George Washington, on the other hand, don’t have that FERPA hurdle but still decided to let their students make it out into the workforce and have a few years under their belt to learn the perils of revolving debt.
And make no mistake, revolving credit is a peril for everyone. It’s a scourge on modern life and serves almost no useful purpose except to build wealth through the most repugnant and unnecessary form of money-lending. Well, and to allow people to make a purchase that will eventually cost them between a 5 and 50% premium. Sadly about 55% of the population disagrees with me or has gotten sucked in by temptation and now carries a balance. You don’t have to agree with me, but I want you to know where I’m coming from – disclosed biases and all that.
So AU and Catholic students, what are your charging habits worth to your schools?
Catholic is doing better, revenue-wise, than AU – insert your own Jesus and the money-lenders joke here – and pulled in a little over $30,000 last year. They did that by getting 43 folks to open new accounts. While some of those might be faculty, staff or alumni, odds are they were the folks who were targeted and whose information was passed on to MBNA so they could go after them: the students.
If you’re thinking that $30,000 is a lot of green in exchange for 43 new accounts, you’re right. The actual revenue Catholic pulls in when a student opens a new credit card as a result of this partnership is one crisp Washington: $1. So where’s the other $29,957 come from? Catholic University, just like almost every other institution that makes this sort of deal with a card provider, makes the big bucks when the cards are used.
I’m damning with faint praise here, but the upside is that agreements have changed over the years. It used to be the big bucks came from cardholder carrying a balance, and the bigger the balance the better, at least as far as the University is concerned: until the contract was re-negotiated Catholic raked in 0.25% of whatever balance a cardholder was carrying.
Newer deals pay out based on charges – about half a percent of those charges, in fact. This deal certainly reflects the bank’s belief that some notable percentage of those users will carry a balance. Transaction fees to Visas and MasterCards typically cost the retailer in the 2% range. MBNA wouldn’t have handing over a full 25% of their profits there unless they were sure there was yet more money to come – after all, some percentage of cardholders default.
Catholic’s responsibilities to MBNA haven’t changed much over the years, though as new contact information becomes useful it gets transmitted too – the original 1995 deal only listed address and phone number as the provided contact information. Now every month they have to hand over the name and contact information of everyone who hasn’t explicitly opted out of this. The terms of the deal say that MBNA can then “solicit Members [ed - students, alumni, ticket purchasers, whoever] by mail, direct promotion, internet, advertisements, banking centers, telephone or any other means.” So if you have provided Catholic any way to reach you, presumably including text message, they’ll hand that data over so MBNA can pitch you. The contract seems to indicate there’s some way for students to opt-out of this sharing but ten minutes on the Catholic website didn’t turn anything up that I could find.
Working backwards from the number $30,000, 43 new accounts and 1,409 ongoing accounts I subtracted $43 for new account commission $4,098 for the $3 continuing account commission. That leaves $28,677 going to CUA. Subtract a $3,000 annual payment and that means that if $23,000 represents 0.5% of the charging or balance-carrying then there’s in excess of $4,600,000 moving around across those 1,409 accounts. $3,264 per account.
Easy to see why MBNA would be willing to pay for that info.
AU’s deal is pretty similar, though it looks like they need a better negotiator: their contract only hands them 0.2% of purchases, a deal worth less than half of Catholic’s. That’s probably a lot of money still left on the table: they got 30 signups in 2009 and had 1,366 total accounts, pulling in $21,698. Subtract the $30 for new accounts and $4,008 for ongoing. It’s not clear that they get any annual payout so we’ll figure 0.2% of the remaining $17,660 balance and that’s $8,830,000 flowing around. $6,464 per account, almost twice what CUA account holders are spending.
Getting your students to get credit cards with your institution’s name on it – and providing their contact information to credit card providers – pays pretty well. The question is, does it pay well enough to justify the institutional involvement with a business that so often harms people’s overall prospects? Here’s hoping Catholic University isn’t having buyer’s remorse – though that seems unlikely after having been involved in a deal like this since the mid-90s – their current contract holds them through 2014. American University may not be in a deal at the moment – the last filed document on the disclosure website shows they’ve ended their deal with MBNA. It’s not clear if they’ve inked a new one yet.
If you’re associated with American and think this is as sleazy a business as I do you might consider letting them know. Facilities and Administrative services seems to be the pertinent group.
Don’t feel bad for those FERPA-bound, schools, by the way – they still eventually monetize their relationships with their students once they get handed over to the Alumni association. In 2009 George Mason pulled in over $70,000 and Howard got about $35,000.