BACK

Student credit cards and young credit

Students steered toward high-fee bank accounts, CFPB warns

Summary

Banks, colleges team up against unsophisticated kids

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

CFPB: Colleges steer students toward high-fee accounts

A federal consumer watchdog agency is warning that colleges and banks routinely team up to steer financially unsophisticated students into checking accounts that can charge hundreds of dollars a year in fees.

The new report, from the Consumer Financial Protection Bureau, says marketing agreements between colleges and financial institutions “present continued risks to students,” who unwittingly get smacked with high fees as they learn to manage money on their own for the first time. It suggests that colleges do a better job negotiating agreements that protect their students’ financial interests.

For some college students, bank fees cut deep into the beer money: Nearly 10 percent of young people with student accounts incur 10 or more overdrafts per year, at an average annual cost of $196 in overdraft charges, according to CFPB research.

“Deals between big banks and schools can drive students into accounts that contain high fees,” said Richard Cordray, the bureau’s director. “\u2026 Many young people struggle to manage money while at school, and we urge schools to put students’ financial interest first.”

Shielding students
In the past few years, policymakers and regulators have stepped up efforts to shield college students from aggressive marketing by banks.

The CARD Act of 2009 made it tougher for banks to offer credit cards to students under 21. It also curtailed marketing cards to students and required colleges to report on card agreements with banks.

Before that law, students were much more likely to run into financial troubles with credit cards, which not only resulted in big fees but could devastate a young adult’s credit. Today, studies show that debit cards are much more popular than credit cards among young adults.

“It’s a great thing to have a kid live on a budget instead of running up $1,000 on a credit card,” says Brian Riley, director of Mercator’s credit advisory service, who has children in college.

Shift to debit cards

Now, with debit cards popular among college students, regulators are taking a close look at the arrangements between colleges and banks. Typically, banks and colleges will sign marketing agreements, with the banks paying the colleges for the right to market their accounts to students.

After examining those agreements – whose public disclosure is required by the CARD Act – the CFPB says colleges could be doing more to protect students from high, unexpected fees. “Students’ interests,” the report says, “may be an afterthought in many marketing agreements.”

“Overdraft fees sneak up on student consumers who are managing their money for the first time,” says Christine Lindstrom, higher education program director for the U.S. Public Interest Research Group, a consumer group.

Representatives of the American Bankers Association and the National Association of College and University Business Officers were not immediately available for comment Wednesday.

See related: Colleges failing to disclose marketing agreements, says consumer watchdog agency

What’s up next?

In Student credit cards and young credit

9 credit lessons for college students

These tips will help students use cards wisely to build their credit in school and beyond

Published: September 2, 2016

See more stories
Credit Card Rate Report Updated: December 4th, 2019
Business
15.09%
Airline
16.88%
Cash Back
17.38%
Reward
17.04%
Student
18.58%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.