October 13, 2022

CFPB: New Report Finds High Fees Charged on Student Banking Products Endorsed by Colleges

Some financial institutions and colleges may be steering students to more expensive financial products

The Consumer Financial Protection Bureau (CFPB) published a report on terms and fees associated with banking products marketed in partnership with colleges to  students. The report raises questions about whether some marketing deals between colleges and financial institutions comply with Department of Education rules. The report also highlights a lack of transparency in the arrangements schools have made with financial institutions. In conjunction with the release of this report, the Department of Education issued guidance to schools  on requirements for college-sponsored banking arrangements and committed to additional oversight  on this issue.

“Many college students trust that schools have their best interests in mind. While colleges have substantial bargaining power to obtain superior terms and pricing for their students, we find that many college-sponsored financial products cost students more than accounts that are readily available on the open market.” said CFPB Director Rohit Chopra. “Today’s report suggests that there is more work to do to ensure that students are not steered into school-endorsed products with junk fees. We will continue to work with the Department of Education to help students find the best possible products.”

A small set of financial institutions partner with hundreds of colleges and universities in the United States to disburse federal financial aid and provide financial products to students, including credit cards and prepaid and debit accounts. These partnerships often claim to support students’ financial health. However, the products marketed to students are often more costly than what students might otherwise find in the market.

Key Findings

The CFPB’s review included data on 11 account providers, including non-bank financial service providers, banks, and credit unions offering more than 650,000 student accounts in partnership with 462 institutions of higher education during the 2020-2021 Award Year. Among the CFPB’s key findings:

The Department of Education Increases Accountability

Today, the Department issued guidance clarifying schools’ responsibility to ensure that campus financial products are consistent with students’ best financial interests, including by reviewing whether any fees assessed are consistent with or below prevailing market rates. This guidance discusses overdraft and NSF fees, given that financial institutions in the general market have increasingly been reducing or eliminating certain fees. The Department also announced that it will take steps to enhance enforcement of its cash management regulations by tracking new data and bringing on additional staff to conduct oversight of college banking arrangements.

Today’s report is the 12th annual report to Congress in fulfillment of the CFPB’s requirements, pursuant to the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The report reviews agreements and data covering the over 1.2 million student checking and credit card accounts that are governed by partnerships between institutions of higher education and financial services providers, and highlights market trends and possible risks. In the college credit card market, the number of agreements, overall payments from issuers to institutions, and the total number of open accounts pursuant to agreements continue to decrease from 2009 levels.

Read today’s annual report to Congress, College banking and credit card agreements .

Read the Department of Education’s new blog post  on the issue and its “Dear Colleague Letter ” to institutions of higher education alerting them to many of the issues identified in today’s report and providing further clarity regarding their obligations under current regulations.

Consumers, including college students, can submit complaints about credit card, prepaid, or debit accounts, and about other products and services, by visiting the CFPB’s website or by calling (855) 411-CFPB (2372). In 2015, the CFPB published a consumer advisory warning advising students that they do not need to choose the financial product endorsed by their school.

This post was originally published here.