Selling Students into Credit-Card Debt

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Not Targeting Students?

Even as Dann mounts his case against Citibank, another credit-card issuer, Bank of America, has exclusive access to Ohio State's students through an affinity contract it negotiated with the alumni association. The contract could pour millions into state coffers. Few such deals are disclosed, but those that are offer a glimpse at the money at stake.

The University of Tennessee recently signed a deal with Chase worth $10 million—roughly $384 per student at a school with an enrollment of 26,038. If Ohio State—with the nation's largest enrollment of more than 59,000—signed a similar pact, it could potentially be worth more than $22 million. Yet the particular terms of the contract, brokered through the alumni association and not subject to open contract laws, is shrouded in secrecy. "It's between us and Bank of America," says Jay Hansen, a spokesman for the Ohio State alumni association. Except the contract isn't just between those two, because it also involves students who are subjected to marketing at athletic events. Hansen contends that the marketing efforts are largely directed at alumni and fans. "The affinity agreement gives us the opportunity to vet a card for our alumni, and make sure that it's a good card, while offering a quality financial product to alumni and fans," he says.

Bank of America leads the charge with more than 900 affinity relationships; JPMorgan Chase (JPM) follows close behind. "College students are a valuable market for credit-card companies because of their potential as long-term loyal customers," says David Robertson, publisher of The Nilson Report, a payment industry trade publication. Build brand recognition with a collegian now, and you may get to sell her car loans, mutual funds, financial advice, and mortgages for decades. "Full-service banks live and die over their ability to offer multiple account relationships to existing customers," says Robertson. Also, in an increasingly saturated market, college students represent a portion of the market that's still growing.

Bill Eviscerated with a Phrase

The affinity contracts also have forced legislators to dilute proposed laws to preserve the privileges promised the banks through these affinity deals. Oklahoma State Senator Jim Reynolds (R-Oklahoma City), authored a bill this year that banned universities from selling student information to card companies for marketing purposes. Initially, Reynolds had sought to ban card companies entirely from college campuses statewide. But the University of Oklahoma protested the ban because it already had promised Bank of America exclusive access to market credit cards in exchange for $1 million per year.

Such an arrangement represented "a fight that we wouldn't have won," Reynolds says. In California, lawmakers passed a bill that bans credit-card companies from getting students to sign up for plastic with free gifts, like pizza, T-shirts, or Frisbees, on all public school campuses. But a key provision in the bill that would have required public colleges to disclose credit-card marketing arrangements was considerably weakened before the bill went to Governor Arnold Schwarzenegger. To ensure its passage, the bill's authors added the phrase "with the exception of proprietary information" to the bill. That one change negated the bill's intended transparency, since schools can use the exception to shield critical details of their contracts by citing them as proprietary. "The students are wondering, are we being sold to the highest bidder?" says Chris Vaeth, director of special projects with the Greenlining Institute (greenlining.org), a left-leaning public policy institute that wrote the bill.

Silver-Greenberg is a reporter for BusinessWeek.com.