Wednesday, July 30, 2014
Inquirer Daily News

Penn State sheds light on credit card banks' college cash deals

"Details of the pact were secret"

Penn State sheds light on credit card banks' college cash deals

The Penn State Alumni Association has collected more than $30 million since 1994 from the nation's biggest credit card bank. The alumni group each year sells Bank of America Corp. the names, addresses, and phone numbers of Penn State alumni - and, until recently, students - so the bank can solicit them for credit cards.

Hundreds of other colleges have similar marketing deals with Bank of America, which purchased MBNA Corp., of Wilmington, the largest independent credit card company, for $35 billion in 2006, so it could gain access to affluent college graduates and other MBNA customers. But details of the pacts were secret until February, when the new federal credit card law forced schools to disclose their credit card marketing arrangements and to stop student sales.

Besides the alumni deal, Bank of America and its predecessor, MBNA America Bank, have paid Pennsylvania State University at least $7 million since 1998 for the list of season-ticket holders to Penn State football and basketball games.
As part of that deal, the bank gets the use of coveted VIP seats and parking spaces at Penn State's Beaver Stadium. Spokeswoman Betty Riess said the bank typically gives those seats as premiums to high-spending borrowers.

The bank stopped soliciting students and giving them free gifts last year, before the law banned those practices.

-- highlights from my March 7, 2010 column in the Philadelphia Inquirer. Here's the whole text of the column, "Some Profitable Dealings in Happy Valley":

The Penn State Alumni Association has collected more than $30 million since 1994 from the nation's biggest credit card bank.

The alumni group each year sells Bank of America Corp. the names, addresses, and phone numbers of Penn State alumni - and, until recently, students - so the bank can solicit them for credit cards and other financial services.

Hundreds of other colleges have similar marketing deals with Bank of America, which purchased MBNA Corp., of Wilmington, the largest independent credit card company, for $35 billion in 2006, so it could gain access to affluent college graduates and other MBNA customers.

But details of the pacts were secret until February, when the new federal credit card law forced schools to disclose their credit card marketing arrangements and to stop student sales.

"For years now, schools have had lucrative kickback deals with credit card companies," said U.S. Rep. Patrick Murphy (D., Pa.). He wrote the provision that banned banks from soliciting cards from students.

Besides the alumni deal, Bank of America and its predecessor, MBNA America Bank, have paid Pennsylvania State University at least $7 million since 1998 for the list of season-ticket holders to Penn State football and basketball games.

As part of that deal, the bank gets the use of coveted VIP seats and parking spaces at Penn State's Beaver Stadium. Spokeswoman Betty Riess said the bank typically gives those seats as premiums to high-spending borrowers.

She said the bank stopped soliciting students and giving them free gifts before the law banned those practices.

From 1998 to 2002, MBNA also agreed to pay Penn State an additional $500,000 a year to ensure that it didn't make deals with other banks and that football coach Joe Paterno kept up his end of another MBNA marketing agreement. Terms of Paterno's deal weren't disclosed.

Penn State first signed with MBNA in 1990. The bank opened a call center near the campus and hired more than 200 students and local workers. MBNA executive Richard "Ric" Struthers, a Penn State alumnus, donated $2 million to the school in 2002, and Penn State named its career center for the bank.

The center has since been renamed for Bank of America, which has so far kept the Penn State call center open while consolidating other sites in Maine and Ohio and cutting more than 4,000 of the bank's former 11,000 jobs in Delaware.

The year after his donation, Struthers was paid $11 million in cash and stock, and he held company shares worth $39 million, according to MBNA filings. Struthers rose to head Bank of America's credit card group, but the company said last week that he plans to leave, after his job was eliminated and his responsibilities transferred.

MBNA in 1994 agreed to pay Penn State $1 for every $100 that graduates charged on their credit cards, plus at least $5 for every new card, and a nickel or more for every $100 deposited with MBNA America Bank, with a minimum total payment of $2 million through 1996.

In 1998, the bank agreed to pay an additional $6 million up front, plus $2.2 million a year for the next eight years, with bonuses if alumni and student debt topped $300 million.

It came close but never reached that figure, Patrick Scholl, the alumni association's business director, told me. "The highest I can recall, in 2006, we were at $280 [million] or $290 million" in debt for Penn State card users. Now it's around $250 million, and the card industry is in decline.

More than one-tenth of Bank of America's overall credit card loans were in default as of last fall.

The number of alumni and students with Penn State credit cards peaked at more than 100,000 in 2006, but has since fallen to about 75,000 as the bank stopped targeting students.

The banks said young people needed cards so they could learn to spend responsibly.

Despite the industry's decline, Bank of America has paid the alumni $2.25 million a year, or about 20 percent of the group's annual budget, since 2006, Scholl said. The agreement runs until 2013. The sports-marketing deal, now set at $375,000 a year, also runs until 2013, Penn State spokeswoman Annemarie Mountz told me. 

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
Business Videos:
Also on Philly.com:
Stay Connected