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Scrutiny of campus financial products grows

Posted in Debit Cards, Prepaid Cards

The U.S. Government Accountability Office (GAO) has joined the CFPB’s call for more transparency in the area of campus financial products.  Last week, the GAO issued a report on college debit cards in which the GAO recommended that Congress consider requiring financial institutions that provide debit and prepaid card services to colleges to publicly disclose their agreements.  In December 2013, the CFPB called on financial institutions to voluntarily post on their websites their marketing agreements with colleges and universities for financial products other than credit cards, such as deposit accounts, prepaid cards and financial aid disbursement accounts.  

The CFPB’s request was an outgrowth of findings on campus financial products it released in September 2013.  The CFPB found that campus financial product marketing arrangements have shifted away from credit cards towards student checking and debit or prepaid cards.  

The GAO found that about 40 percent of the nation’s college students are enrolled at colleges that had agreements with financial institutions to provide debit or prepaid cards services to their students.  (The percentage of students enrolled in college card programs was unknown.)  While finding that the benefits of college cards include convenience for students and cost savings and efficiencies for schools, the GAO highlighted three areas of concern: fees, ATM access and neutrality.  

With regard to fees, the GAO found that fees charged by college card providers generally were comparable to fees charged for similar bank products.  However, it found that two large providers charged a fee for card purchasers using a personal identification number (PIN) rather than a signature, and that such a fee was not typically charged by mainstream debit cards.  

With regard to ATM access, the GAO observed that Department of Education (ED) regulations require colleges to ensure “convenient access” to no-fee ATMs or bank branches for students receiving federal student financial aid.  The GAO is concerned, however, that the ED’s failure to specify what constitutes such access could make it difficult for students to avoid fees when making cash withdrawals of federal aid.

With regard to neutrality, the GAO found instances in which schools or card providers appeared to encourage students to enroll in a college card program instead of presenting neutral options about payment options. 

In light of its findings, the GAO wants the ED to specify what constitutes “convenient access” to no fee ATMs or bank branches and develop requirements for schools and card providers to present neutral information to students.  The GAO’s report included a letter from the ED in which the ED concurred with the GAO’s recommendations and indicated that these issues would be considered in negotiated rulemaking that is scheduled to begin this week and conclude on April 25, 2014.  The negotiated rulemaking is expected to result in the publication of proposed regulations.  According to the ED, the issues to be addressed in the rulemaking include a college’s responsibility for cash management with respect to how a student’s federal student aid funds are disbursed. 

Also included in the GAO’s report was a letter from CFPB Student Ombudsman Rohit Chopra describing the CFPB’s efforts to increase transparency.

Last week, Mr. Chopra published a blog post in which he renewed the CFPB’s call for voluntary disclosure of campus marketing agreements, noting the “potentially risky practice of not readily disclosing” such agreements.  In his post, Mr. Chopra described examples of campus marketing agreements the CFPB had found by “checking state open records databases and other websites where agreements were disclosed.”  According to Mr. Chopra, the CFPB found several agreements providing for payment of a licensing fee to a college for use of its logo in marketing or bonuses based whether students signed up for checking accounts.  It also found agreements under which colleges received discounted or free services in exchange for allowing a provider to market financial products to students, such as reduced charges to the college for transferring loan and scholarship funds to students.