The Consumer Financial Protection Bureau urged a number of financial institutions on Tuesday to disclose how much money they are paying colleges and universities to directly market their products and services to students.
"Students and their families should know if their school, whether well-intentioned or not, is being compensated to encourage students to use a specific account or card product," CFPB Director Richard Cordray said in a statement. "When financial institutions secretly give kickbacks to schools, they are engaging in risky practices."
Many schools have agreements with financial institutions to push their deposit accounts, prepaid cards and debit cards on students, in some cases linking an account with the student's school-issued ID. Colleges, in turn, earn money either in a flat fee or based upon how many students open accounts. Currently, financial institutions are only required to disclose credit card agreements with schools, meaning that many students do not fully understand these and other financial arrangements, according to the CFPB. Although 69 percent of debit card deals are available to the public, the CFPB said sometimes an open records request must be filed in order to get access.
Meghan Johnson, a sophomore at Iowa State University, complained in an email that there is only one institution to choose from in opening an account conveniently linked to a student ID: U.S. Bank.
"I think that we need more options offered to us as college students at Iowa State," Johnson said. "When there is only one checking/debit option, then we are captive to whatever fees are pushed on to us. If there were more banking options available, then we can shop around and find the account with the fees and other features we want."
ISU told The Huffington Post they earned $250,000 this year from U.S. Bank to turn the student IDs into debit cards, and students are not required to open an account with the bank. ISU used the compensation to cover the cost of university ID cards, a spokesman said.
The University of Minnesota collects $1 million annually through an arrangement with TCF Bank. The University of Illinois at Urbana-Champaign told HuffPost it nabs $400,000 annually from TCF Bank. Both schools said funds from TCF are reinvested in scholarships.
But aside from the total amount paid to the schools, a 2012 report from the U.S. Public Interest Research Group found that students often paid more in fees with the debit cards associated with the university than they would pay if they'd simply gone to a local bank. The CFPB backed up that report with their own review, concluding in September 2013 that colleges "may be encouraging or even requiring our young people to use financial products that do not offer the best deals."
In September, a group of seven Democratic lawmakers issued a letter to executives at nine large financial institutions, requesting details on their college arrangements, including the amount of fee revenue they've generated thanks to those deals, and the amount of cash and gifts they've supplied to the schools and their employees. These same details are what the CFPB is now suggesting that financial institutions should disclose.
"Student loan debt has already surpassed $1 trillion, and deceptive, predatory practices like these siphon financial aid dollars away from hard-working students and ultimately make college more expensive," said Rep. George Miller (D-Calif.), one of the lawmakers who penned the September letter.
The National Association of College and University Business Officers, a group representing higher education finance officials, also called on institutions this year to "publicly disclose the terms of any agreements."
If past is any prologue, such disclosure of deals between colleges and banks could lead to the schools abandoning them altogether.
Colleges have fled from credit card agreements since the passage of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act in 2009, with such deals declining 41 percent by 2012. The CARD Act required financial institutions to disclose to the CFPB the terms of college credit card agreements and how much they paid to institutions of higher education.
Prior to the CARD Act, colleges collected royalties for new customers and kickbacks for students' use of credit cards. Despite the decline, colleges and universities that still have credit card agreements earned $50,396,103 from issuers in 2012, according to the CFPB.
"Financial institutions are using the lack of disclosure requirements around debit and checking cards to keep students in the dark," Ethan Senack, higher education associate for the U.S. PIRG, said in a statement. "We support the CFPB's call for financial institutions to publicly disclose all agreements they make with colleges and universities. Students have a right to know the details."
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