The Consumer Financial Protection Bureau announced Thursday it is opening an investigation into whether students are actually benefiting from banking and financial services marketed to them through their colleges or universities.
Institutions often offer products like student ID cards that double as credit cards and debit cards attached to school-affiliated bank accounts with an ability to access scholarship and student loan money. The Credit CARD Act of 2009 made agreements between colleges and credit card issuers subject to public disclosure, but the CFPB said less is known about arrangements regarding other products marketed to students.
“We have seen many colleges establish relationships with financial institutions to offer banking services to their students," CFPB Director Richard Cordray said in a statement. “The Bureau wants to find out whether students using college-endorsed banking products are getting a good deal."
A 2012 report from the U.S. Public Interest Research Group Education Fund titled "The Campus Debit Card Trap" warned students of the heavy fees often associated with these accounts, including charges for balance inquiries and transfers. Often students pay the fees with their federal student aid allowance.
The Federal Deposit Insurance Corporation made a settlement last year with Higher One, Inc. and The Bancorp Bank to address the companies' alleged "unfair and deceptive practices." They were ordered to pay restitution the FDIC estimated at $11 million. The CFPB put out a consumer advisory after the settlement, advising students to choose direct deposit instead of school debit cards, if possible.
Larger universities and alumni associations collect millions annually through credit card issuer payments, while smaller schools and foundations get thousands each year. According to the CFPB's data, 799 higher education institutions, foundations and alumni associations collected a combined $62,428,281 from issuers in 2011.
"Those financial benefits create at least the appearance of a conflict of interest as schools may be tempted to choose the arrangement that gives the school the most money rather than the arrangement that gives their students the best deal," U.S. PIRG wrote in its 2012 report.
The CFPB is looking for information about how these financial services are marketed to students, what information the colleges share with financial institutions and what fees are charged. The consumer watchdog agency is accepting public comments until March 18.