Last week, the Consumer Financial Protection Bureau held a "Banking on Campus Forum" to discuss financial products and services offered to college students on campuses across the country. The issue at hand: campus debit cards.
In recent years, we've seen a major spike in deals that allow financial service providers like Higher One to disburse federal financial aid to students through products like debit cards, as well as deals that allow banks to offer joined campus ID-student debit cards. These deals, which have raised serious concerns from consumer advocates, were shown to have significant risks for students: high fees and push marketing to name just a few.
While these deals allow schools to obtain revenues and reduce costs by outsourcing certain services to banks and firms, the relationships raise questions because these firms end up pushing those costs directly onto students.
Last year, the U.S. PIRG Education Fund report, "The Campus Debit Card Trap," found that students are subject to a number of steep and questionable fees from banks and other financial firms.
There are inactivity and over-withdrawal fees.
There are per-transaction fees.
There are reloading fees and balance inquiry fees.
Students may also be forced to pay fees to access their student aid disbursement, which should be available to them for free.
These debit cards lack consumer protections in case of fraud or loss, and aggressive marketing tactics by partnering banks limit student choice.
In some instances, banks are paying big for the privilege of offering these services to students. A contract between The Ohio State University and Huntington Bank includes $25 million in payments to the school over 15 years -- a hefty investment for access to a market of thousands of students that can be loaded with fees through student ID -- linked checking accounts. Good Morning America recently investigated the TCF Bank relationship with the University of Minnesota, dubbing it a "bounty system" where the school made revenue off of each new student banking customer.
In other arrangements, financial firms like Higher One pay colleges to load student financial aid onto debit/check cards and, in turn, the company charges students with fees to access their aid. Last year, Higher One made 75 percent of its annual revenue from penalty fees squeezed from students.
For Mario Parker-Milligan, a student speaker at the CFPB panel and a recent graduate from Lane Community College in Oregon, his campus's Higher One card seemed like a cool, easy way to manage and access his financial aid. But for Mario, that perception didn't last. After he was hit with a plethora of unexpected fees, he decided to stop using the card, and transferred his balance out.
A few months down the road, Mario received an email informing him he had over-drafted his account. Confused, he logged into his old account and found that he had been charged an 'inactivity fee' -- which drew from his empty account. He was promptly charged for the overdraft, and found himself facing a pileup of expensive fees.
For Mario, and for students like him across the country, it's become clear that college administrators do not have the same interests as the students when it comes to the contracts behind these campus banking products.
College is a time when many young adults have their first experiences with banks. Some students open up their first bank accounts. Financial aid recipients at the school receive refunds, and need to have a place for those refunds to go. Meanwhile, administrators can have a strong influence over the banking choices available to the students on their campus. By virtue of attending that school, students become a captive audience for campus-sponsored banking options. Therefore, it is essential that both the CFPB and the Department of Education take action to clean up the campus banking marketplace in order to protect students.
At a minimum, the CFPB should enact a gift ban like the one put in place in the wake of the private student loan scandal of 2007, when colleges were found to be accepting kickbacks and other inducements in exchange for the their aggressive marketing of a bank's private student loan products. However, when it comes to campus debit/checking accounts, no such ban exists on gift exchanges or on revenue-sharing between campuses and banks.
The Department of Education should consider creating a debit/check card similar to that put in place by the US Treasury and the Social Security Administration last November. Four million Social Security recipients can now receive their benefits fee-free through a debit card, and through checking accounts that don't take advantage of them. At a time when students are dealing with more than their fair share of financial uncertainty, this model would work to ensure that they are protected from these exploitative practices.