Questioning Debit Card Deals

Feds eye new guidance for colleges that want to enter into agreements with financial institutions to offer banking products on campus.

January 15, 2015
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WASHINGTON -- Federal consumer protection officials want colleges to more thoroughly vet the agreements they make with financial institutions to provide banking products on campus.

The Consumer Financial Protection Bureau said Tuesday that it will create voluntary guidelines for colleges as they negotiate deals with financial institutions. The goal, officials said, is for colleges to keep students' financial interest in mind as they negotiate the terms of the arrangements with the companies.

Some of those deals between colleges and providers of debit cards, for instance, have come under scrutiny in recent years. Critics of the arrangements, including many consumer and student advocates, have said they are often clouded in secrecy and burden students with exorbitant fees as they try to access their financial aid on the cards.

The debit cards often come branded with the logo or mascot of the university and are marketed as a convenient way for students to access their student aid. In some cases, the universities share in the revenue of the products, though some institutions and card providers have recently stopped that practice.

The CFPB said Wednesday that it would seek public comment on a draft set of questions that it recommends colleges use when making deals with financial companies. The draft guidelines tell colleges to ask financial institutions about, for instance, the product's various fees for students, its marketing practices and revenue the company makes from the accounts.

The financial companies and debit card providers wouldn't be required to provide that information. Even if they do, the information will not necessarily become public, though some state-funded universities may be forced to release it under open records laws.

CFPB Director Richard Cordray told reporters Wednesday that the bureau "wants to help colleges restore their role as trusted advisers to young people across the country."

Bureau officials have previously called on colleges and banks to publicly disclose the terms of the arrangements they make to provide banking products on campuses. Congress in 2009 required public disclosure for colleges' agreements with credit card providers, which has resulted in a decrease in the number of such arrangements, according to the CFPB.

Anne Gross, vice president for regulatory affairs at the National Association of University Business Officers, said that the CFPB's effort "has the potential to be a useful tool" for colleges as they're comparing financial products.

"In all of the talk about these issues over the past couple of years, schools' consciousnesses have been raised," she said of student fees and the card arrangements. "It's very much front of mind."

NACUBO has previously issued its own set of best practices for colleges, recommending, among other things, that colleges competitively bid for banking products.

Consumer and student advocates praised the CFPB's new draft guidance.

"This is certainly not going to supplant what we need to do in terms of regulation, but it's a fine interim measure, especially while we wait for the real reform to come through," said Chris Lindstrom, who directs the higher education program at U.S. PIRG.

The U.S. Department of Education last year began drafting new rules on campus debit cards, but a rulemaking panel did not come to a consensus on the regulatory language.

The department plans to move ahead with developing a rule, but a spokeswoman on Wednesday declined to say when that would happen.

Bank lobbyists have pushed back against earlier drafts of those rules, which they have described as an overreach by the U.S. Department of Education to regulate financial products that are unrelated or only loosely related to federal student aid. Richard Hunt, head of the Consumer Bankers Association, said in a statement Wednesday that the CFPB’s effort was based on an “antiquated study” and that its banks must abide by “strict federal disclosure rules.” 

Separately, the Education Department is also stepping up scrutiny of all companies, including debit card providers, which colleges hire to do work on their behalf for anything related to federal student aid.

Department officials said last week that “a significant number” of colleges have failed to report their relationship with those companies. They have created a new form for companies to report to the feds those relationships. 


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