The U.S. Department of Education and the CFPB Need to Act On Campus Debit Cards
By Kaitlyn Vitez and Mike Pierce | February 4, 2020
Attending college can be one of the most important and expensive financial decisions in a person’s life. Adding to that expense, many financial institutions and schools partner to offer and aggressively market their banking products on campus. Students with these accounts often end up paying hundreds of dollars or more in account fees each year.
This is a big deal for the millions of young people struggling to make ends meet while attending college. We know that small financial shocks — just a couple hundred dollars over the course of a semester — can often mean the difference between finishing school and being forced to defer or drop out with no degree and a mountain of debt.
Regulators and lawmakers have raised concerns in the past about costly fees and risky features that can be attached to certain college-sponsored financial products. We saw this in the student loan market, we saw this in the credit card market, and now we see it in the market for school-sponsored banking and debit card products.
In 2015, the U.S. Department of Education put rules on the books banning the most egregious fees on some debit cards that dispersed federal financial aid funds. The rule also required that every deal made between a bank and a school is “not inconsistent with the best financial interests” of students. These rules were welcome, because these deals often provide kickbacks for schools but offer few, if any, financial benefits for students.
Today, millions of college students attend schools that have signed contracts with banks to offer debit or prepaid cards. Under the 2015 federal regulations, students were supposed to finally get a better deal. But under the Trump Administration, the U.S. Department of Education has refused to enforce these common-sense rules to protect students on campuses large and small across the country.
In the past, students didn’t need to depend on the U.S. Department of Education to go it alone. Beyond the U.S. Department of Education’s mandate, the Consumer Financial Protection Bureau (CFPB) closely monitored campus credit and banking products and used its platform as the nation’s consumer watchdog to call out agreements that left borrowers with bad deals and good actors locked out of the market. Each year, the Bureau, which is the only federal agency tasked solely with protecting consumers from abuse in the financial services marketplace, is required to release a report looking at credit card deals between banks and schools. In 2014, the Bureau first raised warnings about campus banking products. Two years later, the Bureau told Congress to expect a broader “Student Banking” report each year– recognizing that young adults on campus face risks whenever banks cut deals with schools.
However, as soon as Trump Administration political appointees took over the Bureau, they stopped publication of this critical information, shelving a report that documented how Wells Fargo was gouging students with legally dubious fees on campuses across the country.
And just last month, the Bureau shirked its job when it released its annual report. The document failed to highlight problematic practices and bad actors in the campus banking space. This decision once again had the administration putting the interests of the largest banks over those of millions of students on college campuses.
In the absence of federal action, last year, we dug through these deals ourselves. What did we find? Many of the agreements appear to leave borrowers worse off despite federal rules that should be protecting them from these practices.
This year, we took a closer look at the most recent data on deals between banks and schools. Here are some examples of what we found in the newest data that the Bureau should be focusing on:
- The University of Minnesota-Twin Cities reports that half of the nearly 27,000 students using the sponsored account offered by TCF Bank paid, on average, $48 or more in annual bank fees.
- At Virginia Commonwealth University, more than 3,000 students use the Wells Fargo-endorsed account and pay, on average, more than $40 a year in fees — with half of those students paying close to $80 a year in fees, on average.
- At some schools, such as Florida International University and Florida State University, the student body paid more than a million dollars in fees in a single year, which the banks split with the school.
And here is why this matters: For years, the CFPB helped colleges identify account providers that offered low- and no-fee accounts. The Bureau did this by analyzing data on account fees disclosed by schools. As a result, hundreds of colleges now use affordable accounts, but students at colleges such as those highlighted above still pay high fees under deals cut by their schools. In these cases and many others, these deals surely violate the Education Department’s “best financial interest” standard and are a far cry from CFPB’s model for “safe and affordable” student accounts.
And the problems extend beyond just those contracts that have been disclosed. Federal rules require colleges with a banking partner to annually post information on account volumes, account fees and compensation paid to the college. This must occur on both the institution’s website and to the U.S. Department of Education. However, it appears ED is not enforcing this requirement. For example, in 2012, The Arizona Republic first reported that Arizona State University expects to “cash in” on their multi-million-dollar partnership with MidFirst Bank. That agreement earned a bounty of $15 or more for every student who opened an account. However, details about the fees students pay and royalties paid by MidFirst to ASU have not been disclosed in the U.S. Department of Education’s centralized database and could not be readily identified on the colleges’ website. Beyond that, in the U.S. PIRG study mentioned above, 27 percent of the contracts in the department’s own public database were either out of date or had broken link. That’s clear evidence of the department being asleep at the wheel.
So, who is watching out for students? In the past, the CFPB was an effective watchdog to help shield consumers from predatory banking practices, but it appears to be turning a blind eye as banks and schools soak students in fees. Students deserve better. All consumers deserve better.
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Kaitlyn Vitez is the Higher Education Campaign Director at the U.S. Public Interest Research Group (PIRG). At PIRG, Kaitlyn directs campaigns to make higher education affordable by advocating for increased student aid, protecting students from predatory financial practices, and making textbooks more affordable. She got her start working as a campus organizer with students at Rutgers University in New Jersey working on college sustainability and affordability.
Mike Pierce is the Policy Director and Managing Counsel at the Student Borrower Protection Center. He is an attorney, advocate, and former senior regulator who joined SBPC after more than a decade fighting for student loan borrowers’ rights on Capitol Hill and at the Consumer Financial Protection Bureau.