Managerial Auditing Journal

Why we need to use credit cards: a university experience

Roger K. Doost

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Roger K. Doost, (1997),"Why we need to use credit cards: a university experience ", Managerial Auditing Journal, Vol. 12 Iss
2 pp. 105 - 106
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Why we need to use credit cards: a university

experience

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Roger K. Doost
Professor, School of Accountancy, Clemson University, Clemson,
South Carolina, USA
Describes what took place in
a university when the authorities supported that credit
cards should no longer be
accepted for the payment of
fees. Discusses the arguments for and against the use
of cheques and credit cards.
Suggests that continuing to
accept credit cards would be
more helpful to students.

The issue
About a year ago, Clemson Universitys Faculty Senate suggested to the administration
that they should ask the students and their
parents to pay their fees by cheque rather
than use credit cards. The group thought,
almost unanimously, that this change of policy would save the institution substantial
amounts of money to go towards the teaching
mission instead.
What the financial records showed was that
the discount paid to financial institutions for
this service amounted to $314,159.69 for the
1994-95 academic year. Approximately, 50 per
cent of this sum was for payment of tuition
and fees. The balance was for other services
such as housing, canteen, bookstore, parking,
and athletic events. The professors were asking why we should pay this fee at a time when
dollars are short and every dollar possible
should be saved and used wisely.

What ensued
The financial vice-president explained that:
the cost of credit card discount charged to
state agencies accepting credit cards in the
past was paid by the State Treasurer. Beginning July 1993, the credit card discount
charge was passed on to all state agencies.
Following common practice of most retail
operations that accept Visa and MasterCard,
a decision was made to absorb the credit
card discount charge as an operating
expense.

Managerial Auditing Journal

12/2 [1997] 105106
MCB University Press
[ISSN 0268-6902]

The Faculty Senate was not satisfied with this

explanation and on 9 May, 1995, passed a resolution which read, Whereas, the university
accepts Visa and MasterCard for payment of
student fees and tuition; whereas, the university absorbed a total of $179,565 in charge fees
in the fiscal year 1993-94 in the Bursars area
alone; whereas, such a practice is prevalent
in retail businesses where such costs are
passed on to consumers; Resolved, that the
Faculty Senate urges the Administration to
husband its limited resources to instituting
an appropriate surcharge to recoup all costs
associated with credit card financing of student fees and tuition.

A few weeks later, the financial vice-president provided further explanations and justifications on why credit cards should be used.
In his letter of 26 May, he explained, All state
schools in our Bursars Group allow payment
of tuition and fees with credit cards. This
group includes USC, College of Charleston,
Winthrop, Francis Marion, and Lander. None
of these schools have a recoupment charge.
Our agreement with Wachovia prohibits any
such surcharge.
He continued to explain that acceptance of
credit cards for tuition payments helps keep
our costs down by reducing returned check
costs and reduces security risks by decreasing the amount of cash that must be handled.
Also, in todays tight economy, allowing student fees to be paid by credit card increases
the number of students that are able to attend
the University. The vice-president of finance
concluded that the charge fees that the University absorbs for charge cards bring offsetting benefits to the University. I recommend
the continued acceptance of fee payment by
charge card.
In their letter of 28 June, the Faculty Senate
responded to the above letter arguing against
most of the justifications cited in the abovementioned letter. The letter read in part:
change is brought about usually by one
agency taking the lead. If we think there is
merit in this regard, we must pursue it
regardless of how many other schools accept
credit cards without recoupment of fees.... If
regular gas companies can get banks
approval for use of surcharge, we should not
have much difficulty in negotiating a new
agreement.... If any student fees are not fully
paid, then, the student may be dropped from
the rolls and can not sit for the class. Any
returned check should be settled usually
during the first week of class. Returned
check handling fees should recover the
necessary handling costs.

In the same letter, on the question of the risk

of handling cash if credit card usage is
denied, the Senate response was that students
do not usually carry a lot of cash in their
pockets. Payments would probably be made
by cheque with little security risk as compared to credit card payments.
Another question raised was the need to
use credit cards because of the tight economy.

[ 105 ]

Roger K. Doost
Why we need to use credit
cards: A university experience

Downloaded by Universiti Teknologi MARA At 01:26 04 June 2016 (PT)

Managerial Auditing Journal

12/2 [1997] 105106

The Senate response in this regard read that

the primary beneficiary of credit cards (particularly for large purchases) are the banks
who collect millions of dollars for a minimal
service. ... Most students take advantage of
this service for a little convenience. The
Senate concluded that we are not aware of
other offsetting benefits and reiterated the
earlier Senate position for elimination of the
use of credit cards.
On 6 September, representatives from the
Faculty Senate had a meeting with representatives of finance division to discuss and
clarify some of the issues raised in the above
correspondence. The agreement that Senate
obtained from finance in that meeting was:
a follow-up to be carried out with chargecard companies to see if a commensurate
rebate could be obtained if students agree
to use a particular credit card;
a survey to be conducted to see whether the
students primarily use credit cards for
credit needs or for convenience;
a statement to be inserted in the invoice
package requesting payment by cheque if
possible.
In a follow-up letter of 19 September, the
administration vice-president indicated that
as several charge cards were being used,
getting rebate from all these companies could
be impossible to work out. Instead, they
would explore whether it was prudent to limit
the usage to one credit card which could
accept partial rebate and charge the university a lower fee. The vice-president also cautioned for prudence in terms of how a possible survey should be worded so that not to
alarm students and their parents with regard
to any possible change in policy. It was further stated that the inclusion with the tutors
bill of statement encouraging payment of fees
by other means should wait until after the
survey was done, so that a better decision
could be made on the possible courses of
action to be taken.
The vice-president of administration concluded at this time that the whole matter of
credit cards comes down to making a smart
business decision as we weigh cost to the
University against good customer service and
student/parent satisfaction. We simply have
to know that altering one service for financial
gain does not cost us in the long run either
financially or strategically.
On October 18, 1995, the vice-president of
administration pursued the pending items in
our prior correspondence. He wrote to the

[ 106 ]

student senate and academic affairs committee requesting input from those bodies concerning their thoughts about the charge card
service that the university provided and
whether they thought students and parents
consider this service to be important.

Lessons learned
Involvement in this matter was both instructive and encouraging. A healthy debate
ensued after the Senate brought up the question of the use of credit cards. The faculty,
who are primarily involved in their work of
teaching and research, come to appreciate the
difficulties faced by administration in dealing with suggestions and proposed changes.
The finance division and the vice-president of
administration were most co-operative and
responsive in responding to the concerns of
the Faculty Senate and attempting to co-operate with and accommodate our suggestions as
far as was practical. A special sense of cooperation and understanding persisted
throughout this process, and a lot was learnt
about the value of co-operation, understanding, and respect for one anothers roles in
doing the best for the university. What we also
learned was the need to do more background
work when a suggestion of this magnitude is
brought to the Senate floor for its deliberation
and decision.

Conclusion
The university has negotiated the best rates
possible for the use of credit cards. Many
students and their parents see this as a service and this benefit cannot easily be taken
away from them. If this service is denied,
there is the possibility that a number of students would not be able to complete their
education or, at least, it could delay the completion of their degree requirements. Finally,
by eliminating charge card usage, the relevant expenses do not go away. Yes, there is
more risk in handling cash and cheques. But
also, the credit companies provide the money
to the institution up-front at the time the
credit card goes through. There is no waiting
time and there is no loss associated with it.
Otherwise, we may have to deal with some
bad cheques and some uncollectable accounts
and considerably more record keeping and
tracking of collections and returned items
from the bank.