Colleges frequently make deals with large banks to create college-sponsored checking and prepaid accounts, but those deals are often risky and leave students with high fees. This is according to the Consumer Financial Protection Bureau’s annual report to Congress on student banking, which was released yesterday.
The bureau analyzed about 500 of these deals and found that dozens have no limit on account fees. In other words, there’s no cap on overdraft fees, out-of-network ATM fees or other fees placed on students. Ten percent of students with these accounts ended up paying at least 10 overdraft fees in 2014 -- these students, on average, paid $196 in overdraft fees in one year. A small financial shock -- "unexpected expenses of a few hundred dollars," the report stated -- could throw some students for a serious financial loop, even causing them to drop out of college.
The report also found that while the agreements include details about how banks and colleges can profit from the deals, there is little to no information in those agreements about how the deals benefit students. Colleges also tend to fail at properly evaluating the products and services offered to students, and some schools did not publicly disclose marketing agreements, which is illegal.
The bureau came to these conclusions even after the Department of Education instated new regulations last year meant to protect students who purchased the college-sponsored financial accounts.
In September, the bureau established a public, online database of approximately 500 deals between colleges and banks. A year ago, the bureau also published the Safe Student Account Toolkit, which can be found here.