As thousands of students prepare to flood college campuses, the government’s consumer watchdog is urging universities to disclose how much money they receive when banks promote debit cards, prepaid cards and checking accounts on their campuses.
Regulators say the terms of the accounts being offered to students are not always clear and some are riddled with fees. Rather than presenting unbiased information to students, they say, schools are getting paid to act as middlemen for financial partners, a potential conflict of interest.
This week, the Consumer Financial Protection Bureau sent letters to 10 of the country's largest universities urging them to publish their contracts. Letters went out to: the University of Illinois, University of Maryland, University of Michigan, Michigan State University, University of Minnesota, University of Nebraska, Northwestern University, Ohio State University, Penn State University and the University of Wisconsin.
Northwestern spokesman Bob Rowley said the school Web site provides information about the relationship with US Bank, which offers a checking account linked to student IDs.
"That's where a parent or a student would go to learn more information," Rowley said, in an e-mail. "However, beyond that, as a private institution, we do not normally disclose details of our contracts with our private contractors."
Initially, the CFPB asked banks to voluntarily post their contracts with schools, with limited success. The bureau turned its attention to the 14 schools that make up the “Big Ten” conference, which together enroll more than half a million students. Eleven of those schools have bank ties, but only the University of Iowa's partner, Hills Bank & Trust, posts its contract on its Web site.
In that deal, the bank agreed to pay the school more than $1 million over the course of a five-year contract that includes a $125,000 signing bonus. Hills Bank & Trust, which did not respond to requests for comment, 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 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 remainder goes to the school.
TCF Bank, which has arrangements with the University of Illinois, University of Michigan and University of Minnesota, has partial contracts available for review. But those agreements lack information about how much the bank pays the schools to gain access to students in exchange for promoting its products and services.
In an e-mail, University of Michigan spokesman Rick Fitzgerald said the school “takes the issue seriously,” but he was not available for further comment. No other university responded to requests for comment.
Schools have argued that the money they receive from financial partners helps keep the doors open, especially as states have cut their education budgets. Yet lawmakers and regulators remain uneasy about the relationships.
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.
"Making these agreements available for all financial products shows schools’ and companies’ commitment to transparency, helping students and their families understand basic information about these products before you sign up," said Rohit Chopra, the student loan ombudsman for the CFPB.
The bureau started sniffing around the financial products promoted on campuses last year to figure out whether the market was working for students and families.
Officials learned that in the wake of the CARD Act, schools were moving away from credit card agreements toward deals to promote checking accounts. The number of college credit card agreement declined by 41 percent between 2009 and 2012, as did the amount of money card companies paid to colleges — $50.3 million in 2012 compared to $84 million in 2009, the CFPB reported.
At least 852 schools, or 11 percent of colleges and universities in the country, were marketing debit or prepaid cards to students as of July 2013, according to a report from the General Accountability Office. A majority 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.
Researchers at the GAO found that the fees on campus card — overdraft or maintenance fees — were in line with the kinds of charges you’d encounter at a bank. But the GAO couldn’t pin down the total fees students are charged because some companies refused to disclose that data.
In May, a group of 65 congressional Democrats, led by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.), introduced legislation to end the payoff system and prevent universities from steering students into payment products. It would take an act of Congress to get schools to be fully transparent about their financial ties, but so far Republicans have not thrown support behind the idea.
The Department of Education took up the campus card issue in February as part of a broader review of student aid programs conducted by a 15-member panel. The group of consumer advocates and educators couldn't reach an agreement, leaving any changes in the hands of the department, which has yet to set a timeline for issuing any rule. But even then, the agency could only deal with accounts that are used to disperse financial aid.