The Consumer Financial Protection Bureau (CFPB) has released a report detailing the fees and terms of banking products marketed to college students in partnership with their schools. The report not only highlights the lack of transparency in the partnerships between financial institutions and colleges but also suggests that marketing deals may not comply with rules set by the U.S. Department of Education.
- The CFPB has released a report to Congress on college banking and credit card agreements.
- The report finds that colleges and universities may be steering their students toward more expensive banking products with partnering financial institutions.
- The report suggests that colleges lack the transparency and compliance required for educational institutions.
Colleges May Be Encouraging Their Students to Sign Up for Expensive Bank Accounts
The CFPB's annual report to Congress highlighting college banking and credit card agreements has raised some questions for both the consumer watchdog agency and the Department of Education.
In the report, the federal agency highlights 11 account providers, including banks, credit unions and non-bank entities, that partner with 462 colleges and universities to offer more than 650,000 student accounts. The CFPB's findings are as follows:
- Students are being marketed more expensive products: Financial and educational institutions are engaging in direct marketing efforts to promote accounts that cost more than comparable options—sometimes even compared to other accounts offered by the same providers.
- The top financial services provider charges surprise fees: The report specifically calls out BankMobile, which provides nearly 70% of the accounts in question, for charging a $2.99 monthly service fee on accounts with less than $300 in qualifying deposits every month. However, the institution doesn't count financial aid disbursements, which may comprise the bulk of a student’s deposits, as qualifying deposits. Nearly $13 million of the more than $15 million in annual costs paid by students in the CFPB’s sample was paid to BankMobile.
- Many account options don't appear to meet Department of Education requirements: The Department of Education requires that students be allowed to select the way they receive their financial aid from a neutral list. More specifically, colleges can't threaten students with financial aid disbursement delays if they choose an account that isn't sponsored by the school. However, the CFPB identified instances where students were told that financial aid payments might not be as timely if they didn’t choose an account sponsored by the university.
- Many agreements don't appear to be posted prominently as required: Nearly 30% of accounts in the CFPB’s sample involved arrangements in which the financial services provider made payments to the partner school. Schools are required to post on their websites the agreements they have with financial services providers, including compensation exchanged between them and the average costs paid by students. However, the CFPB found that hundreds of schools appear to have failed to post the disclosures in the manner required.
In response to the report, the Department of Education released a Dear Colleagues letter reminding educational institutions of their obligations in their agreements and partnerships with financial institutions.
You can read the full CFPB report for more details on the federal agency's findings.