WASHINGTON The Consumer Financial Protection Bureau wants financial institutions to publicly disclose their agreements with colleges and universities that allow them to market debit, prepaid and other retail products to students.
The request, announced Tuesday, expands on previous requirements for banks to disclose campus agreements related to credit card marketing. A 2009 law restricting credit card practices, known as the CARD Act, curtailed predatory credit card marketing to students. But the CFPB remains worried that other products like debit and prepaid cards, which were not included in the statutory reforms, can still be risky.
"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 the release. "When financial institutions secretly give kickbacks to schools, they are engaging in risky practices."
The CFPB said even when there are public disclosures, they can be difficult to find, particularly those related to debit card arrangements. Sometimes a consumer must file a special public records request to obtain a disclosure.
"The CFPB prioritizes its supervisory examinations based on the risks posed to consumers. When institutions do not make these college financial product arrangements transparent to students and their families, they may increase such risks," the CFPB said in its release.
The new disclosure request was prompted by the agency's efforts earlier this year to seek public comments about financial products marketed to students.
Banks have long used various agreements with schools to market products on campus, and such pacts were once viewed as giving students easier access to a bank account or credit. Schools can get royalties as part of such agreements, sometimes based on the number of accounts opened or transaction activity. But the CFPB said it received complaints that some students were surprised by hidden fees on debit cards and other products offered on campus.
Yet some suggested the CFPB may be exaggerating the effects of such royalty agreements, saying that they are only really prevalent at large state universities that allow student ID cards to be used as debit cards.
"One of the problems is when there's conflation of two different types of operations where [larger schools] are getting payments for affinity kind of arrangements," Anne Gross, vice president of regulatory affairs at the National Association of College and University Business Officers, said in an interview. But with other campuses, she said, "these are generally services schools are paying for."
In addition to calls for added transparency, the CFPB also released a report showing a continued decline in college-related marketing agreement for credit cards since passage of the CARD Act. Such agreements have dropped 41% in the past four years, the bureau said. The study also said kickbacks to colleges and universities from credit card companies dropped 40% between 2009 and 2012 to $50 million.