|by Jason Steele|
The exploitation of college students was specifically targeted by the CARD Act. In the past, banks were heavily marketing their products on campus to students who had no real means to pay off any money borrowed. It was a textbook example of predatory lending. Under CARD, adults under 21 have to show a means to pay their bills or get a co-signer. Furthermore, banks are prohibited from marketing their products within 1000 feet of campus.
Colleges Getting A Cut From Cards
Think of it as a new twist on cash back credit cards. Instead of the cardholder getting cash back from the bank for using the card, your local college is getting cash back from promoting the credit cards. This article in the Denver Post details how cash strapped colleges in Colorado are making deals with banks to promote their products. The idea is that a banks will pay the school money to co-brand a credit card with the school’s logo. More money is made off of ATM placements, and even a cut of the merchant fees. For example, the University of Colorado Alumni Association and the University of Denver both get .5% from each transaction made with their cards, operated by different divisions of Bank of America. How do we know this? Another provision of the CARD Act requires that schools disclose their marketing agreements with the banks. There is no reason to believe that these programs aren’t common at colleges throughout the nation.
Is This A Good Deal?
Whether or not this is a good deal, depends on your perspective. If you are on the board of one of these colleges, and you are looking for every dollar you can find to fund your school, these agreements are a great move. The University of Colorado will make 7.1 million dollars over 7 years, nearly half a million a year. This is money that the citizens of the state, (like me), or their students, (like my wife), don’t have to pay.
For cardholders, the deal isn’t quite as good. The University of Colorado card marketed to students is from a local credit union, unlike their Alumni Association card from Bank of America. Credit unions generally offer better service and more competitive interest rates than bank cards. On the other hand, the bank cards seem to provide a maximum of 1% cash back to the card holder. This is pretty much the bare minimum you can expect from a reward credit card. You will get the satisfaction of knowing that you are benefiting your alma mater, but unlike a cash donation, your sense satisfaction is not tax deductible.
Elizabeth Warren, who has been chosen to set up the Consumer Financial Protection Bureau, put it this way in her testimony to Congress about the CARD Act; “Credit card companies have become masters at probing every human trait—failure to scrutinize bills, willingness to try to help an alma mater, inability to make correct calculations on present discounted value of various card terms.” Simply put, these cards are in the best interest of your school, but it is very easy to find a reward card that would be of greater benefit to yourself. If you still want to benefit your school, take a chunk of your rewards and make a tax deductible donation at the end of the year.