Banks Pay $73M in 2010 for Issuing Credit Cards to College Students

The CARD Act of 2009 has not succeeded in greatly limiting banks’ ability to open new college credit card accounts, we learn from a new Federal Reserve report. While the study does show that fewer new college accounts were originated in 2010 compared to 2009, the drop is not as steep as one would expect, considering the restrictions under which banks can now issue cards to Americans under the age of 21.

In fact, we learn that the number of issuers that have entered into, and paid for, relationships with college organizations, giving them easier access to young applicants, has increased for the period.

Issuers Pay $73M for Access to College Students in 2010

The Fed report tells us that various college organizations were paid $73 million by 19 card issuers in 2010, a decrease of 13 percent from the $84 million paid out by financial institutions in 2009.

According to the report, one issuer — Bank of America subsidiary FIA Card Services, N.A. — was responsible for 76 percent ($55.6 million) of the total payment amount. Here is the top-5 list of highest spending issuers in 2010.

The easier access to college students bought by the 22 issuers identified in the report has translated into the origination of more than 46,000 new accounts. This category too is dominated by FIA Card Services, to an even greater extent. BofA’s subsidiary has opened 84.8 percent of all new college credit card accounts in 2010, according to the report.

Who Gets Paid

The biggest beneficiaries of the issuers’ college spending were Alumni Associations, according to the Fed. Although they accounted for only 36 percent of all college credit card agreements, the participating Alumni Associations collected 54.7% of the total payment amount in 2010 ($40,100,591), while institutions of higher education received 24.7 percent ($18,123,524).

Here is the top-5 list of the college institutions or organizations that were the largest recipients of issuer payments in 2010.

The Takeaway

The CARD Act barred issuers from marketing credit cards on college campuses and required banks to only issue cards to consumers under the age of 21 if the youngsters could prove that they were able to repay the debt; otherwise a qualified co-signer would be needed.

However, nothing in the CARD Act prohibits banks from entering into card issuing agreements with college institutions and organizations that would then do much of the marketing for them. I expect that, as issuers are now stepping up their marketing efforts and extending more credit and at better terms than they have in a long time, they would also begin to more actively pursue partnerships with college organizations. After all, this is the only avenue left to them for an access to college campuses. It will not go unused.

Image credit: Moneysmart.sg.