Banks are still peddling accounts riddled with fees to college students, taking advantage of a loophole in regulations meant to curb controversial financial agreements that yield millions of dollars for universities.
A Consumer Financial Protection Bureau analysis of 500 marketing deals between colleges and large banks found no prohibition of monthly maintenance fees, out-of-network ATM fees or overdraft fees in many agreements. Students, as a result, remain vulnerable to charges that reduce money needed for food, books and other college expenses, the report said.
The findings are especially troubling in light of research suggesting that even small financial shocks can derail low-income students from completing a college degree, diminishing their earnings potential and putting those with student loans at risk of default.
“Many schools are more focused on their bottom line than their students’ well-being when they agree to sponsor financial accounts,” CFPB Director Richard Cordray said in a statement. “Many young people struggle to manage money while at school and we urge schools to put students’ financial interest first.”
The report arrives a year after the Education Department curtailed the ways colleges manage credit balances, the money left over when a student’s financial aid award exceeds tuition and fees owed to their schools. Schools can no longer for students to have that money disbursed on a debit or prepaid card, and must ensure they are not hit with fees for overdrawing the account.
For years, colleges have outsourced the processing of credit balances to banks and other financial firms in exchange for millions of dollars in contracts. Roughly 10 million students are enrolled in schools that have these sorts of agreements, according to the CFPB. Advocacy groups found that some banks charged a host of fees that cut into the Pell grants and federal student loan money dispensed on the so-called campus cards. The new rules forced schools to provide students a list of account options to receive excess tuition funds, with each option presented in a neutral way.
But the overdraft ban does not extend to other types of campus cards. A number of schools let financial firms use their logo or place checking or prepaid account feature on student IDs. Colleges promote these hybrid cards as a convenient way for students to manage funds, but the terms of the accounts aren’t always transparent. And even if they are, the CFPB said fees attached to the accounts can pose problems for students.
“Campus banking products shouldn’t be a financial windfall for colleges at the expense of students,” said Suzanne Martindale, staff attorney for Consumers Union. “Schools should negotiate marketing agreements with banks that maximize value and protect students from abusive and costly fees.”
Nearly one in 10 consumers with student accounts incur 10 or more overdrafts per year, paying on average $196 in fees, according to the report. PNC Bank, which has over 20 agreements with colleges across the country, charges $36 for overdrawing an account.
PNC spokesperson Fred Solomon said the bank has practices in place to support students as they learn to manage their finances.
“PNC provides a courtesy fee refund on the first overdraft in the first year after a student opens a student account, and we refund the overdraft fee if a student is overdrawn by less than $5 at the end of a the day,” Solomon said.
David Pommerehn, associate vice counsel at the Consumer Bankers Association, said the law requires all account holders to opt-in to overdraft services, so no student can incur an overdraft fee without agreeing to do so in the first place. What’s more, he said students can opt-out of the service at any time.
“The report focuses almost exclusively on overdraft fees and out-of-network ATM fees but offers no hard data to support its position,” Pommerehn said. “All banks provide free in-network ATM transactions, which, given that campus account agreements often provide extensive, convenient ATMs on and around campus and around the campus town, means those with campus accounts have wide access to free ATMs.”
Colleges and universities contend that the money they receive from financial partners helps keep the doors open, especially as states have trimmed their education budgets. Florida International University, for instance, receives revenue from Wells Fargo based on the portion of students with accounts at the banks, with increased payments based on 5 percent increases in market penetration, according to a contract reviewed by the CFPB.
Schools have been known to use revenue from these deals to fund scholarships or otherwise lower the cost of attendance, but regulators and advocacy groups worry that they are doing so at the expense of some students.
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