Fight Over Campus Banking

The Obama administration proposes new restrictions on campus financial products, sparking another round in the battle with banks and the financial services industry. 

May 15, 2015

The Obama administration is taking on banks and other financial firms with new rules that would ban certain fees they can charge college students as well as restrictions on how they market products on campuses.

The U.S. Department of Education on Friday unveiled draft regulations on debit cards and other financial products offered on campuses. Consumer advocates have long sought the rules, which have drawn the ire of the financial services industry.

The draft regulations target two categories of financial products. First, the department is seeking to place the most stringent restrictions on debit cards and prepaid cards that colleges use to directly disburse federal grants and loans to students. For those accounts, the department would prohibit point-of-service fees, overdraft or insufficient funds charges, and ATM withdrawal fees.

A second category includes checking accounts or other financial products that are offered on campus or marketed to students under an agreement with the college. For example, some banks offer debit cards that are co-branded with the logo or mascot of a college. Those types of products would be prohibited from charging account access fees or in-network ATM withdrawal fees.

The draft regulations also include new restrictions on how either type of account is marketed to students as well as disclosure requirements.

The department has been working on writing the rules since negotiations over the regulations broke down last spring. The White House’s Office of Management and Budget signed off on the department’s proposal earlier this week after meeting with industry lobbyists and consumer advocates.

Even before the draft regulations are formally proposed, though, the Education Department has been the subject of a furious, multimillion-dollar lobbying effort by financial firms -- eclipsed in recent years perhaps only by the Obama administration’s regulatory wars with the for-profit college industry.

Since the department first said in 2012 that it planned to regulate campus debit cards, Higher One, one of the biggest players in the industry, has spent more than $1.2 million lobbying department officials and members of Congress, federal records show.

But after the Education Department said last year that it was eyeing a more sweeping regulation that included banking products beyond the direct aid disbursement products that companies like Higher One offer, it attracted the attention of the financial services industry.

Banking industry lobbyists argue the department is stepping far outside its regulatory powers in going after campus financial products that may or may not involve federal aid dollars.

“None of the provisions of the Higher Education Act the department relies on provide it authority to regulate bank products,” said Dave Pommerehn, vice president and senior counsel at the Consumer Bankers Association. “The statute does not address, let alone prohibit, fees charged by banks and credit unions for ordinary banking services provided to students.”

A bipartisan group of lawmakers on Capitol Hill have echoed the financial industry’s concerns, calling on the Education Department to either abandon its efforts or narrow the scope.

Aside from decrying those possible fee restrictions, financial firms have also pushed back against the Consumer Financial Protection Bureau’s efforts to get them to publicly disclose the arrangements they have with colleges to market products.

The Education Department’s draft rules would require that the agreements between colleges and financial firms be publicly disclosed. Congress in 2009 required the arrangements between colleges and credit card companies to be made public, but that law doesn’t apply to debit cards and other financial products used by college students.

The regulations have long been sought by consumer and student advocates, who have criticized the arrangements between colleges and financial institutions as well as aggressive marketing of products to students on their campuses.

Beth Huang is the coordinator of Student Labor Action Project, a joint campaign of Jobs With Justice and the United States Student Association. She said the groups brought students affected by overdraft and other fees to Washington to meet with Education Department officials and congressional staff.

“We’re excited about the prospect of eliminating some of the worst predatory practices that financial institutions have on campuses across the country,” she said. “We want to make sure federal financial aid is actually going to students rather than padding the profits of financial institutions.”

Chris Lindstrom, the higher education director of U.S. PIRG, who was a negotiator on the department’s rule-making panel last year, said she hoped the department would publish a rule that is as strong as its draft proposals from last spring.

“We want strong, fair rules that are just as fair for students on campus as they are off campus,” she said. “This is the Department of Education’s chance to knock it out of the park when it comes to protecting students.”


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