Truth About Credit In The News

Marisa Schultz / The Detroit News

Amid growing national scrutiny over credit card companies aggressively marketing to financially naive college students, Michigan State University will no longer provide student information to Bank of America to solicit undergraduates for credit cards.

Under a seven-year contract worth at least $8.4 million, MSU gives the bank contact lists of students, alumni, ticket holders and employees as well as permission to use university logos and set up promotional displays on campus. In return, the university makes $1 for each new account and 0.5 percent of all retail purchases, among other payments.

"You get bombarded as soon as you enroll as a freshman -- credit card offers, loan consolidation," said MSU senior Whitney Gronski, 21. "You are trying to establish credit, but maybe opening a credit card and maxing it out is not the best solution to that. It seems ridiculous to target us."

Other universities, including Western Michigan and Central Michigan, say they do not have such contracts because they view them as conflicts of interest.

MSU is standing by its partnership with the bank and wants to renew the contract when it expires in June. University officials say money generated helps fund student scholarships.

However, the terms will be modified so the bank no longer targets students, instead focusing on alumni, who have been the bulk of the business, the university said. Bank of America has already ceased mailings to students, the university said.

"There's no question that banks are preying on undergraduate college students through sweetheart deals negotiated with colleges and universities," said Ed Mierzwinski, consumer program director of U.S. PIRG, the federation of state Public Interest Research Groups, which recently released a report criticizing campus credit card marketing. "College students are being marketed to without their consent, and colleges are receiving massive fees from credit card companies for the privilege."

Bank of America says it takes steps to protect students. The bank offers financial education, caps credit lines for undergraduates at $2,500 and won't increase interest rates on student cards for nonpayment or late payment. Students make up about 2 percent of card holders, with alumni and employees being the largest consumers.

'Fair and responsible'

"Bank of America takes a fair and responsible approach to lending and, when we do provide credit cards to students, our program includes terms tailored to the student market and a strong educational component," said spokeswoman Betty Riess. "Our objective is to provide students with the tools they need to help them start establishing a credit history and build a long-term relationship with us."

Terry Livermore, manager of university licensing programs at MSU, said: "It's been a very good contract for the university. We are going to try to keep as many of the characteristics of the agreement as possible."

At the University of Michigan, the Alumni Association has an 11-year, $25.5 million contract with similar terms of sharing mailing lists with the bank, marketing on campus and making money off each new card.

"Since our contract doesn't expire until 2014, there has been no discussion about the inclusion or exclusion of students" in future contracts, Jerry Sigler, the association's senior vice president and chief financial officer, said in a statement.

While these "affinity" agreements between major universities and banks are common, consumer advocates and politicians have pushed for greater student protection from credit card issuers and banning practices such as "tabling," in which bank reps lure students to fill out credit card applications with food and T-shirt giveaways.

California, Oklahoma, Texas and other states already restrict credit card marketing on public campuses. Like MSU, U-M's alumni association has invested far more in students with the credit card revenue than they have received from them. Royalties from student accounts bring in about $20,000 to $25,000 per year but the alumni association pumps about $780,000 annually of its credit card revenue into scholarships and student programs.

Managing credit is a large part of students' educational experience and the partnership with Bank of America can bring benefits to students that are not otherwise available from the purely commercial interest of other credit card issuers, Sigler said.

A.J. Huber, a junior at U-M, signed up for Bank of America's U-M logo card after receiving an offer in the mail and hopes other students get the opportunity to establish their own credit histories.

"It's up to the students to make their own financial decisions, whether they are taking out loans ... or signing up for credit cards," said Huber, 21, from Farmington Hills. "They are legal and responsible adults and they should be treated as such."

Studies show students will be inundated with credit card offers whether their university sells their contact information or not. On average, students receive about 15 credit card solicitations a month, according to a survey by Student Monitor LLC.

'Campus Credit Card Trap'

U.S. PIRG released a report in March called "The Campus Credit Card Trap," which found banks are marketing aggressively to students and students are paying a high price through late fees, high balances and delinquencies. The result is that 2 out of 3 of the students reported having at least one credit card, according the survey. Some students find themselves in trouble quickly. Student Legal Services at MSU and U-M report a regular stream of students overwhelmed with credit card debt.

MSU student Emily Pines, 20, sorts mail twice a week for residents in the West Circle dorms. Every mail shift there are credit card offers and sometimes there's a huge stack that comes with the junk mail, she said.

None have been from Bank of America.