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Banks won’t be able to charge students who open a college-sponsored deposit account fees for insufficient funds under an updated regulatory proposal from the Biden administration.
Colleges and universities can partner with banks to disburse financial aid to students in the form of prepaid credit cards or bank accounts. The Consumer Financial Protection Bureau has found over the years that college-sponsored financial products sometimes come with fees not found in other types of accounts. For example, some banks charge students so-called sunset fees when they graduate or leave an institution, which would be prohibited under the updated proposal. All told, in the 2021–22 award year, students with college-sponsored accounts paid about $15.7 million in fees, including penalties for not having sufficient funds.
The CFPB also has found that some banks charge monthly service fees on accounts with less than $300 in qualifying deposits, but they don’t count financial aid deposits. Under the administration’s proposal, the institution managing the account won’t be allowed to differentiate between federal financial aid and other funds when assessing fees. Colleges also would have to follow the CFPB’s Safe Student Account model, which outlines the permissible fees for such accounts.
An advisory committee will review the proposal next week along with changes to the rules for state authorization and accreditation, among other topics. The negotiating session, which will run for four days, will be the second of three monthly meetings.
Mike Pierce, executive director of the Student Borrower Protection Center and a former CFPB official, said in a statement to Inside Higher Ed that the updated proposal signals that Education Secretary Miguel Cardona has joined President Biden’s fight against junk fees.
“This is great news for college students across the country,” Pierce said. “As schools have grown reliant on banks to run their financial aid machinery, they have greased the gears with junk fees paid by their own students. Today is the beginning of the end for bad back-room deals between banks and colleges.”
