CFPB urges colleges to compare deals for student accounts


Colleges that endorse a bank in return for a fee should take a hard look at what that bank's accounts cost students, under draft guidelines announced Wednesday by the U.S. Consumer Financial Protection Bureau.

"In recent years, many colleges learned that their financial institution partners were engaged in troubling practices," CFPB Director Richard Cordray said during a press call.

The agency's draft "Safe Student Account Scorecard" gives colleges a tool for comparing the fees, marketing practices and overall costs of student accounts that they might endorse. The proposal, which is in a comment period until March 16, would work in tandem with regulations on student accounts that are being drafted by the U.S. Education Department, the CFPB said.

Colleges' lucrative contracts
As students shoulder more and more student loan debt, regulators are looking for ways to cut excess higher education costs. They have focused on campus-sponsored bank products, which are often tied to debit cards that bear the school insignia. While colleges may receive tens of millions of dollars from banks in return for exclusive marketing rights on campus, the "campus cards" are not always a good deal for the students who use them.

"Many of products promoted by colleges are no better than what's generally available," said Rohit Chopra, CFPB student loan ombudsman, citing a study by the U.S. Government Accountability Office.

In recent years, many colleges learned that their financial institution partners were engaged in troubling practice.

-- Richard Cordray
CFPB director

Sometimes the campus-endorsed products are worse than market offerings. In 2012, the Federal Deposit Insurance Corp. issued a consent order to Higher One, the leading provider of campus cards, for unfairly racking up insufficient funds fees on overdrawn accounts. The company and its banking partner -- The Bancorp Bank -- agreed to refund about $11 million to 60,000 students.

Consumer advocates said the CFPB's voluntary guidelines are not sufficient to rid campuses of bad campus cards, but they provide an important piece of protection.

"I do think there's a role for a referee," said Christine Lindstrom, higher education program director at U.S. Public Interest Research Group. College administrators, who lack a background in consumer financial protection, can adopt the agency's guidelines with confidence. "This is a third party who understands the complexity of banking arrangements and has a mission and a function to protect the consumer," she said.

Score card proposed
The CFPB's draft score card calls for banks to provide standardized information that colleges can use to compare student account deals. In addition to a clear description of fees, the guidelines include disclosure of how accounts will be marketed to students and what the fees would cost a typical user over the course of a year.

The Education Department is expected to publish regulations by the end of February that restrict fees and other costs of college-endorsed student accounts that receive federal student aid. The CFPB's guidelines, while lacking regulatory teeth, could apply more broadly to accounts that are not necessarily linked to federal aid, Chopra said.

The Credit CARD Act of 2009 required banks to disclose the terms of on-campus marketing deals for credit cards, including the lucrative fees paid to campuses. Since the requirement took effect, college endorsement deals have shifted toward debit cards, which are not covered by the disclosure requirement.

See related: Higher One grows to dominate college debit card market

Published: January 14, 2015

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Updated: 10-24-2016

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