Funneling Students to Bank Fees?

California State University, Sacramento, bills its OneCard as official student identification that can be used for much more.

A OneCard can be used to access campus facilities and for day-to-day financial needs, according to a Sacramento State website about the card. The website links to another site for the San Francisco-based banking giant Wells Fargo, where students can connect checking accounts at the bank to their student identification cards in order to have some bank fees waived. The site also notes that a Wells Fargo branch is “conveniently located in the Hornet Bookstore,” with bankers on-site to answer questions.

“California State University, Sacramento and Wells Fargo have teamed up to offer you the Sacramento State OneCard, a convenient single-card solution that gives you free access to cash at Wells Fargo ATMs nationwide, as well as to make purchases using your Personal Identification Number (PIN) when linked to a Wells Fargo Everyday Checking account,” the website says.

With a few clicks -- which many students might not make -- users can find a Department of Education-mandated disclosure showing just how many bank accounts have been linked to OneCards, how much those accounts have cost students and how much Wells Fargo pays Cal State Sacramento under its Campus Card program.

The website lists 13,788 active accounts for the year ending June 30, 2017. On average, the holders of those accounts paid $47.35 for the year -- money drawn from costs like foreign ATM fees or overdraft fees. Wells Fargo paid Sacramento State $119,764, mostly in royalties, although about $25,000 went to marketing and operational support.

In other words, in one year Wells Fargo collected more than $650,000 from fees on Sacramento State-linked accounts and paid the university just under $120,000 in return.

The fees Wells Fargo charges to Sacramento State and dozens of other universities are under new scrutiny after Senator Dick Durbin last week sent a letter to Wells Fargo CEO Timothy Sloan, asking him to stop any plans the San Francisco-based bank has to expand on college campuses. Durbin, an Illinois Democrat, was concerned after two recent developments rocked Wells Fargo and called its basic business practices into question.

In February, the Federal Reserve levied harsh penalties against the bank after a string of revelations showed it had opened extra accounts in customers’ names and required some customers to take out automobile insurance deemed unnecessary. Although those scandals were not tied directly to the bank’s actions on campuses, Wells Fargo also found itself factoring heavily into a January Wall Street Journal report about the fees banks charge to students at their college partners. That report found Wells Fargo charges students many of the highest average fees among college-connected bank accounts.

“While the Federal Reserve takes steps to correct your bank’s irresponsible behavior, I urge you to halt any efforts to expand your offering of financial products on college campuses until the Federal Reserve lifts its sanctions,” Durbin wrote. He also asked Wells Fargo to provide an up-to-date list of all colleges and universities with which it has agreements for providing students with financial services.

Wells Fargo is reviewing the letter, according to a spokesman. It’s not clear if the bank will respond.

The bank-connected college ID card is relatively common. In addition to the numerous colleges with which Wells Fargo contracts, several other major banks, like PNC Financial Services Group and U.S. Bancorp, strike card deals with colleges.

Participating colleges argue the banking deals ensure their students have access to basic, low-cost banking services while providing campuses with funds to help subsidize operating costs and the expense of printing ID cards. But detractors say some colleges are funneling students to banks that take advantage of their young customers with high, unexpected fees that could be avoided if only students shopped around for better terms. A 2016 report from the Consumer Financial Protection Bureau found dozens of college banking deals place no limit on account charges like overdraft or ATM fees.

It can be tempting to dismiss the inquiry from Durbin, a senator in the minority party concerned about banking fees at a time when the Department of Education is pursuing plans for a prepaid student aid card. But the issue of college-sponsored banking products could continue to be important in light of Education Department regulations going into effect in recent months. Those regulations apply to deals between financial institutions and colleges under which the financial institutions directly market products to students. They require colleges to disclose data including average costs paid by account holders.

The Wall Street Journal’s analysis looked at fees charged by banks in such deals and found Wells Fargo was responsible for 22 of the 30 highest average fees from the 2017 fiscal year. Community college students and students at regional public colleges paid the highest average fees, the Journal found. Accounts connected to PNC had 20 of the 30 lowest average fees.

After Durbin sent his letter, Inside Higher Ed conducted an examination of data for Wells Fargo accounts connected to 29 different colleges for the year ending in June 2017. Students at the University of Florida, where there were 37,353 active accounts, paid the lowest mean costs among the group -- $31.51 each. Students at Metropolitan State University in Denver paid the highest at $83.85, although just 247 accounts were active. The next highest mean costs were at Florida A&M University, where 6,219 accounts paid a mean cost of $67.99. In each case, median costs were far lower than mean costs, indicating a relatively small group of students pays far higher fees than the student body as a whole.

Wells Fargo paid a wide range of sums to institutions in 2017. Its smallest consideration paid was $10,421 to Fayetteville State University. Its largest was $340,000 to Texas A&M University. Fayetteville State had the second-fewest active accounts -- 543 -- behind Metropolitan State. Texas A&M had the most, 38,386.

Payments Wells Fargo makes to a university are determined through a bidding process between college and bank, not the sum of fees students pay, according to a Wells Fargo spokesman. The fees customers pay are determined based on how they manage their accounts, and the bank’s campus card program waives monthly service fees for participants who link a Campus Card to a specific checking account.

That waiver doesn’t cover other fees, like charges for using out-of-network ATMs or returned check fees. In the end, the amount of fees levied can be vastly different when comparing campuses.

“For example, some campuses have higher concentrations of nontraditional or part-time students with more complex banking needs, such as sending wires or purchasing more checks,” the Wells Fargo spokesman, Jim Seitz, said in an email. “Others may have high international populations that send and receive money to/from overseas.”

So where does that leave Wells Fargo-affiliated colleges like Sacramento State? Asked about the average fees paid by account holders at Sacramento State -- $47.35 -- Seitz said the fee is for the entire year and equates to less than $4 per month. Many students pay no fee, he said.

But other colleges have deals with different banks that resulted in lower fees. PNC Bank’s deal with Penn State resulted in average fees of $14.32 for 13,216 students. The same bank’s deal with the University of Illinois System resulted in average fees of $15.03 paid by 10,903 active accounts. PNC paid Penn State considerations totaling $1.14 million. It paid the Illinois system $1.1 million.

Leaders at Sacramento State argued the comparison is apples to oranges. For instance, the Illinois considerations of $1.1 million include rent for branches and ATMs. Because of California law, such lease payments aren’t included in disclosed considerations, said Gina Curry, associate vice president for financial services at Sacramento State, who oversaw the university’s OneCard program for several years and helped to negotiate the university’s last Wells Fargo contract revision.

Various contracts can cover a wide range of different services. When college leaders sign a bank deal, they evaluate more than just the amount they will receive from the company or the fee schedule under which students will have to pay, Curry said.

Sacramento State wanted a bank with a physical presence in the area, she said. Having local branches allows students to access ATMs without paying a service charge, and it allows them to visit banks if they have needs that can’t be served by an ATM.

Wells Fargo was also willing to make important concessions, Curry said. It was willing to open accounts for so-called unbankable students, who might not normally qualify for a standard no-fee bank account because of a troubled financial history -- like bouncing checks. Wells Fargo also agreed to only market bank accounts in university-related materials, meaning credit cards are excluded. And when bank employees appear on campus at events like orientation, Sacramento State representatives accompany them and monitor their language.

“If they are like, ‘This is the campus bank account,’ we tell them, ‘Nope,’” Curry said. “We tell them they can’t come back, and they send somebody else.”

Of course, those rules don’t necessarily prevent Wells Fargo from marketing other products, like credit cards, to students after they are the bank’s customers. And then there is the issue of the behavior that caused the Federal Reserve to sanction Wells Fargo. A deal with Wells Fargo could easily be seen as a campus endorsement of the bank, its products and its practices.

Sacramento State representatives had “long conversations” about the opening of mystery accounts with Wells Fargo, Curry said. The university makes clear to students they can bank anywhere they choose.

On the issue of whether Wells Fargo is charging too much in fees, Curry said she is uncomfortable with the idea that students are young and don’t know enough to avoid fees. Students have a responsibility to manage their bank accounts, she said.

“It gets a little tricky, because I come from a collections background,” she said. “I want to hold people accountable for their bad practices, whether that be late fees on campus or whether you bounce checks.”

The University of Illinois System also evaluates many different factors when choosing a bank, according to a spokesman. Colleges are required to conduct at least biennial reviews to make sure fees on the whole are consistent with or below prevailing market rates, he said. But the system also looks at which financial institutions provide services in the region and evaluated a total of 79 data points.

Meanwhile, it’s clear contract terms could incentivize colleges and banks to behave in different ways. For instance, Sacramento State’s contract with Wells Fargo pays it escalating royalty amounts based on the percentage of enrolled students who have linked checking accounts to their cards. The university receives $95,000 when the weighted campus card penetration reaches 30 percent. The scale slides down to $15,000 for zero percent penetration and all the way up to a royalty of $275,000 for 100 percent. Some other colleges have moved away from payments based on account volume or penetration, choosing instead to take flat fees.

Curry rejected the idea that the royalty schedule would motivate Sacramento State to encourage students to link their cards with Wells Fargo bank accounts. While Wells Fargo has increased its campus penetration over time, the university budgets for the current level of penetration and has grown used to it, she said. It simply wants students to have a bank but does not encourage them to switch to Wells Fargo, she said.

Nonetheless, it’s clear different banks can have varying levels of success on campus. The University of Illinois System contracted with TCF Bank from 2007 to 2015 before moving to PNC. With TCF, an average of about 14,000 accounts were opened annually. With PNC, the average is about 5,000 per year.

It’s also clear that banks want to enlist customers early. About four out of five students graduating with an account under Wells Fargo’s Campus Card program remain with the bank after college, according to its spokesman, Seitz.

“We want to build lifelong relationships with customers, and we know that the experience a student customer has with us will impact our opportunity to serve the customer’s future financial services needs,” he said via email.

Durbin also asked Wells Fargo to indicate whether it had notified students at colleges and universities about the recent sanctions from the Federal Reserve and whether it would impact them.

“I will be watching your bank’s process in improving its company policies and practices with great interest, especially with respect to your treatment of America’s student consumers,” he wrote.