The Consumer Financial Protection Bureau last week sent letters to 10 of the countrys largest universities urging them to publish the terms of prepaid cards, debit cards and checking accounts that banks are promoting on their campuses.
The regulatory agency believes the terms of the accounts offered to students are often unclear and full of fees. Rather than presenting unbiased information to students, the CFPB says schools are getting paid to act as middlemen for financial partners.
Letters were sent to the University of Illinois, the University of Maryland, the University of Michigan, Michigan State University, the University of Minnesota, the University of Nebraska, Northwestern University, Ohio State University, Penn State University and the University of Wisconsin.
The fear is that when students arrive on campus, they often quickly seek out a credit and/or debit card. Cards sporting a school logo are an immediate draw but the logos are a sign that the school and the card vendor have revenue sharing and other agreements that may not be disclosed.
The CFPB also has named several banks and credit unions it says have not provided enough information about their agreements with universities where financial products are sold to students.
Among the financial institutions named are: TCF National Bank of Minneapolis (University of Minnesota), Wells Fargo (University of Nebraska), Capital One (University of Maryland), PNC Bank (Penn State), Huntington Bank (Ohio State) U.S. Bank (Northwestern University) and university credit unions at Michigan State and the University of Wisconsin.
Schools argue that the money they receive from financial institutions is an important part of the ability to continue operating. Yet lawmakers and regulators have long been uneasy about the relationship.
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 forced credit card companies to disclose contracts with colleges, but the law does not extend to checking account, debit and prepaid card agreements.
In December 2013, the CFPB reported that colleges and universities were making payments to financial institutions that it described as secret agreements to market deposit accounts, pre-paid cards and other financial products to students. A February Government Accountability Office (GAO) study found that schools and card providers "encouraged enrollment" in campus-branded cards "rather than present neutral payment options."
Initially, the CFPB asked banks to voluntarily post their contracts with schools. The request had limited success. Then, the consumer watchdog turned its attention to the schools in the Big Ten conference. Eleven of the schools have bank ties, but only the University of Iowas partner, Hills Bank & Trust, posts the contract on its website.
The bank in that deal agreed to pay the school more than $1 million in a five-year contract that includes a $125,000 signing bonus. Hills Bank & Trust also offered the university a cut of the swipe fees the money merchants pay banks each time a debit card is swiped it made off of student debit card transactions. Seven percent of the fees collected by the banks goes to campus student organizations, and if the bank collects more than $50,000, the rest goes to the school.
An estimated 852 schools, or 11% of U.S. colleges and universities, were marketing debit or prepaid cards to students as of July 2013, according to a report from the GAO. Most of those schools let students receive federal aid on the cards and outsourced the processing of that money to their financial partners on the card deal.