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The U.S. Department of Education is stepping up its enforcement of college-sponsored banking arrangements.
In conjunction with a new report from the Consumer Financial Protection Bureau, the department released a Dear Colleague letter Thursday reminding institutions about their role in overseeing agreements with financial institutions and detailing the steps the department will take.
“We are aware of certain practices that may pose risks or excessive costs to students,” the letter says. “Institutions have a responsibility to protect their students when it comes to financial products.”
Colleges and universities can partner with banks to disburse financial aid to students in the form of prepaid credit cards or bank accounts, but the bureau’s report found that the institutions aren’t complying with federal regulations when it comes to those agreements. The bureau found that under those agreements, the most costly products are promoted to students and many students are directed to accounts that don’t meet ED standards.
BankMobile, a provider that controls 70 percent of the accounts, charges monthly service fees on accounts with less than $300 in qualifying deposits, but financial aid deposits don’t count.
“Of the $15 million in annual costs paid by students in the CFPB’s sample, nearly $13 million was paid to this provider,” according to a news release.
The Education Department is planning to improve the reporting and tracking of information related to the college banking agreements and bring on additional staff to oversee those arrangements, among other steps.
The problem is not new, and the bureau’s report found that many of the issues identified over the last 10 years persist, according to the report.
“Many college students trust that schools have their best interests in mind. While colleges have substantial bargaining power to obtain superior terms and pricing for their students, we find that many college-sponsored financial products cost students more than accounts that are readily available on the open market,” CFPB director Rohit Chopra said in the release. “Today’s report suggests that there is more work to do to ensure that students are not steered into school-endorsed products with junk fees. We will continue to work with the Department of Education to help students find the best possible products.”
