Washington DC – The Consumer Financial Protection Bureau (CFPB) publishes a report on terms and fees associated with banking products marketed in partnership with colleges to students. The report raises questions about whether some marketing deals between colleges and financial institutions comply with Department of Education regulations. The report also highlighted a lack of transparency in the arrangements that schools have made with financial institutions. In conjunction with the release of this report, the Department of Educationon the need for college-sponsored banking affairs and on this issue.
“Many college students believe that the school has their best interests in mind. While colleges have considerable bargaining power to obtain better terms and prices for their students, we found that many college-sponsored financial products cost students more than accounts available on the open market,” said CFPB Director Rohit Chopra. “The report today suggests that there is more work to be done to ensure students are not pushed into school-supported products with rubbish fees. We will continue to work with the Department of Education to help students find the best products.”
A small set of financial institutions work with hundreds of colleges and universities in the United States to distribute federal financial aid and provide financial products to students, including credit cards and prepaid and debit accounts. These partnerships often claim to support students’ financial health. However, products marketed to students are often more expensive than what students might find on the market.
The CFPB’s review included data on 11 account providers, including non-bank financial service providers, banks and credit unions that offered more than 650,000 student accounts in partnership with 462 institutions of higher education during the 2020-2021 Award Year. Among the CFPB’s key findings:
- Financial service providers and their partner schools seem to offer and promote more expensive products to students than what is available on the market: Students are subject to direct marketing efforts that promote accounts that charge more than comparable accounts – even comparable accounts offered by the same financial service provider. Some provider agreements with schools allow them to charge students five overdraft or NSF penalties, per day, costing $175.
- One entity dominates the market for financial aid disbursements, providing nearly 70% of the accounts offered in partnership with schools—and charging a hefty monthly fee: Under this provider, account holders are charged a monthly service fee on accounts with qualifying deposits of less than $300 per month, but financial aid withdrawals that may comprise a large portion of student deposits do not count as qualifying deposits. Of the $15 million in annual costs paid by students in the CFPB sample, nearly $13 million was paid to these providers.
- Many students are directed to a list of account options that do not appear to meet Department of Education requirements: Under Department of Education regulations, students must be allowed to choose how they receive their financial aid from a neutral list, and cannot be forced to choose a college-sponsored product under the threat that their financial aid disbursement will be delayed if they choose not to be sponsored. account. The CFPB identified instances where students were told that financial aid payments might not be timely if the student did not select a college-sponsored account.
- Many agreements between financial institutions and colleges do not appear to be as clearly displayed as they should be: Nearly 30% of the accounts in the CFPB’s sample were subject to arrangements in which financial service providers made payments to partner schools. Schools are required to post on their websites the agreements they have with financial service providers, any compensation exchanged between them and the average cost paid by students. These disclosures help make the terms of the college-bank relationship transparent, but the CFPB’s review found that hundreds of schools do not appear to be posting such disclosures in a public and easily visible manner.
Department of Education Increases Accountability
Today, the Department released guidance that clarifies the responsibility of schools to ensure that campus financial products are consistent with the best financial interests of students, including by reviewing whether any fees assessed are consistent with or below current market rates. This guide discusses overdraft and NSF fees, as financial institutions in the general market increasingly reduce or eliminate certain fees. The department also announced that it will take steps to improve enforcement of its cash management rules by tracking new data and bringing in additional staff to conduct oversight of the college’s banking arrangements.
Today’s report is the 12th annual report to Congress in compliance with the CFPB’s requirements, pursuant to the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The report reviews agreements and data covering more than 1.2 million student checking and credit card accounts controlled by partnerships between higher education institutions and financial service providers, and highlights market trends and potential risks. In the college credit card market, the number of agreements, total payments from issuers to institutions, and the number of open accounts pursuant to agreements continued to decrease from 2009 levels.
Read today’s annual report to Congress,.
Read Department of Educationon the issue and “ ” to higher education institutions making them aware of many of the issues identified in today’s report and providing further clarity on their obligations under current regulations.
Consumers, including college students, can submit complaints about credit, prepaid or debit card accounts, and about other products and services, by visiting the CFPB website or by calling (855) 411-CFPB (2372). In 2015, the CFPB published a consumer advisory alert advising students that they should not choose financial products endorsed by their schools.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial laws and ensures that the marketplace for consumer financial products is fair, transparent and competitive. For more information, visit consumer finance.gov.