The U.S. Government Accountability Office (GAO) has released a study that describes the growing number of colleges and universities who have entered into arrangements with financial institutions to market bank accounts, prepaid cards, debit cards and other financial services (including disbursing financial aid) to students. While the Consumer Financial Protection Bureau (CFPB) has encouraged financial institutions to voluntarily fully disclose these agreements on their websites, the CFPB found that nearly a third of public colleges and universities fail to do so.
Schools argue that these college-lender agreements offer convenience for students and, potentially, help lenders to establish long-term financial relationships with students. However, the GAO remains concerned about how some of the financial agreements impact students, their families and colleges.
For example, the GAO found that many schools encouraged students to choose the college-lender product rather than providing unbiased, neutral information to help student consumers select the financial product that best meets their needs. The GAO speculates that these endorsements on the part of colleges and lenders may be influenced by incentives the schools receive as part of the school-lender agreements. These incentives may not be adequately disclosed to students.
The GAO cites an instance in which a lender provided $25 million to a school for the use of the college’s logo on affinity credit cards. Such a practice is currently banned for student loans but not for credit cards. In another example, a college is paid an up-front fee for endorsing the lender’s financial services on campus. (Additionally, the college can receive a bonus payment for each new student who signs up for the services.) The GAO report also cited instances in which college card fees for purchases using a personal identification number were higher than for similar debit card products provided by banks.
The CFPB notes that while “many financial institutions offer good products at competitive prices,” colleges, universities and lenders who have financial arrangements should disclose these relationships and provide unbiased information to students. Without more transparency about these types of relationships, student consumers are prevented from making informed decisions about what is in their best financial interest.
The U.S. Public Interest Research Group (U.S. PIRG) published a report, The Campus Debt Card Trap, which identified high fees and inconvenient free ATMs as key issues.
Both the U.S. General Accountability Office and the Consumer Financial Protection Bureau have indicated that they will be addressing these issues as they develop new rules. The U.S. Department of Education will also be revising the regulations concerning disbursement of federal student aid funds through debit cards.
In the meantime, students and their families are encouraged to review the Consumer Financial Protection Bureau’s Managing Your College Money and consumer advisory for information on accessing student loans and scholarships. Students and parents who wish to complain about a student loan, checking account, or credit card, may submit a complaint online or call 1-855-411-CFPB (1-855-411-2372).
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