University profits from logo-marked credit cards

Swiping a Tommy Trojan-emblazoned Bank of America credit card does more than just engender a sense of Trojan pride — it also generates money for the university.

Charges · Royalties earned from USC credit cards help fund the Alumni Association’s programming and add to the resources of the athletic department. - Megan Harmon | Daily Trojan

Many universities, including USC, have agreements with banks that give a bank the right to use the university’s logo on a credit card if it provides the university with a small cut every time the credit card is used.

In 2010, USC received more money from its credit card issuer than all but three universities in the country, according to an annual report issued by the Federal Reserve. The university earned about $1.5 million in royalty payments from FIA Card Services, a company that processes credit cards on behalf of Bank of America.

Some of that $1.5 million goes to fund the USC Alumni Association’s programming, and some of it goes to the athletic department, according to Scott Mory, CEO of the Alumni Association, which negotiates the contract with Bank of America. Mory said because the cards are marketed to fans at athletic events, it made sense to give some of the money to the university’s athletic teams.

“The agreement with Bank of America covers both the Alumni Association and athletics,” Mory said. “It’s a branded credit card marketed toward the Alumni Association [with profits going] to alumni and secondarily to athletics and to the university.”

Most of the USC-branded credit cards are held by USC alumni and USC sports fans, although anyone, including students, can go to a Bank of America branch and open an account.

As part of the credit card agreement, USC provides Bank of America with mailing information of alumni, donors or supporters who might want a USC credit card. The larger the mailing group, the larger the benefits for the credit card company and the institution itself.

“[Groups like FIA] provide a royalty based on the number of accounts opened, number of times the card is used or something is purchased,” said Robert D. Butters, a lawyer specializing in affinity agreements who works with a number of credit issuers.

Though USC is not paid for providing credit card companies with the mailing list, releasing that list increases the size of Bank of America’s marketing pool, ultimately leading to higher purchase rates and therefore greater royalties for USC, according to Butters.

“The larger the pool of people [the bank] can solicit, the more valuable the account,” Butters said.

Marketing credit cards to students would significantly increase the pool of potential cardholders, but USC maintains it does not actively encourage students to open any sort of credit card.

“We don’t market it to students and we don’t provide student information to Bank of America,” Mory said.

Under the Credit Card Act of 2009, which placed restrictions on credit card issuers’ interactions with students, students can be legally marketed to, but only if they are older than 21.

There are no restrictions on indirect marketing, so Bank of America can contractually advertise USC’s credit card during athletic games and on USC gear, such as T-shirts and key chains.

“[The credit card issuer] can promote their cards at football games,” Butters said. “Those promotions aren’t targeted at students. Obviously they’ll be exposed to the ad, but that’s not considered targeted at students because there are a lot of non-students in the stadium witnessing the event.”

Mory said years ago students were heavily targeted, but the alumni association has since changed its strategy.

“When the contract was first started decades ago there was aggressive marketing toward students,” Mory said. “That stopped out of concern for student financial welfare.”

Ceasing to market to students doesn’t seem to have hurt Bank of America or USC. Though the total number of college-affiliated credit card accounts opened fell 17 percent from 2009 to 2010, USC ranked among the 10 institutions with the highest number of accounts opened. A total of 536 new USC accounts were opened in 2010; in 2009, USC had a total of 659 new accounts.

Richard Perez, who graduated from USC in 1998, has had a USC Bank of America credit card since 2008. He said he doesn’t mind that his credit card use supports his alma mater.

“I don’t think it’s such a bad thing,” Perez said. “USC makes money on pretty much anything with their colors on it, so of course they’re going to get a cut from the bank.”

As for ranking fourth among universities in revenue generated, Mory said he isn’t very concerned.

“The universities aren’t competing with each other,” Mory said. “USC is proud of its program … and we’re proud that so many Trojans have the pride to want a [USC] credit card for their use.”