Negotiations between industry, customer groups and universities on U. S. rules for banking services aimed at college students have stalled over a Department of Education proposal in order to ban most account fees.
According to Bloomberg, financial companies say that if the proposal is adopted it could upend the multimillion-dollar marketing and advertising deals between universities and firms including Wells Fargo (WFC) & Co., U. S. Bancorp plus Huntington Bancshares Inc. (HBAN) Advocacy groups maintain that the banks are usually deliberately painting a worst-case scenario.
Under the bank-university agreements, schools typically sell the right to offer checking accounts and debit cards in order to enrolled students. While colleges state they and the students benefit, lawmakers and consumer groups have contended for years that the contracts can expose students to unreasonably high costs for activities including cash withdrawals and overdrafts.
The training Department is writing the rules under a so-called negotiated rulemaking, a process in which interested parties meet in public sessions to reach a consensus. Conferences in February, March and April failed to produce an agreement. In an effort to break the deadlock, the department added a fourth session to begin Might 19.
According to the draft distributed by the department, the particular rule would protect students from “any costs” associated with opening, sustaining or closing a “sponsored account, ” and would guarantee them at least four free withdrawals per month from any cash machine in the state.
The talks snagged on the definition of a subsidized account. Consumer groups argue it will cover all accounts that students open with banks that have marketing and advertising agreements with their educational institution. Banking institutions say the rule should use only to those specifically opened in order to channel federal financial aid, often referred to as Name IV funds.
Even though students may not represent a lucrative market at first, banks like to indication them up because they often turn out to be lifelong customers with mortgages plus investments.
“The idea that they need a captive audience is wrong, ” said Maura Dundon, senior policy counsel at the Clarington, North Carolina-based Center for Responsible Lending, told Bloomberg. “They marketed before they had these agreements along with colleges, and they’ll do it after the department makes new rules. ”
Contracts between financial and education institutions have proliferated in recent years. In a May 2012 statement, the U. S. Public Attention Research Group, an advocacy company, counted almost 900 deals among colleges and banks or various other financial institutions at schools with a mixed enrollment of more than 9 million, about 42 percent of students countrywide.
The agreements often revolve around a payment card branded with the university’s name and logo. San Francisco-based Wells Fargo, for example , has an agreement that turns the particular student ID at the University associated with Nevada at Reno into a bank account debit card. U. S. Bancorp, headquartered in Minneapolis, has a similar arrangement with North Carolina State University or college.
Under some contracts, notably those between colleges plus New Haven, Connecticut-based Higher One Holdings (ONE) Inc., the company helps manage the disbursement of government aid into student accounts.
One bank association lobbyist, said the agency lacks the particular authority to oversee accounts that don’t funnel federal aid. “The Department of Education is overstepping its jurisdiction here, ” he or she told Bloomberg.
Denise Horn, a spokeswoman for the schooling department, declined to comment on the pending rule.
Consumer organizations argue that even accounts not really specifically opened to handle aid will often have federal funds passing through them at some point.
“The possibility that Title IV funds will end up in these accounts is higher than the randomly selected alternative, ” mentioned Chris Lindstrom, director of the advanced schooling program at the public interest team.
The Education Department has been called to action by each lawmakers and the Consumer Financial Protection Bureau, an agency created by the the year 2010 Dodd-Frank regulatory overhaul which held a Sept. 30 hearing on campus financial products that highlighted the opportunity of abuse. The bureau’s director, Rich Cordray, also called on companies to create public their contracts with schools.
Last month, Representative George Miller, a California Democrat that has been probing the matter for years, delivered a letter, also signed simply by 23 other lawmakers, telling the particular department it should “protect students from unfair banking practices” by banning fees on accounts receiving government financial aid, prohibiting revenue-sharing between banking institutions and schools and publicizing financial institution contracts for student products.
“Colleges should be recommending financial products that provide the best deal to students, not the biggest financial reward for that institution, ” they wrote in the April 22 letter.
On the other side of the issue, Representatives Alcee Hastings and Alan Grayson, 2 Democrats from Florida, warned the particular department last week not to restrict colleges’ ability to make deals with banks.
For their part, colleges have pushed back against the attack on marketing deals, highlighting the benefits that accrue to the students through the financial institution payments.
The University associated with Minnesota, for example , gets about $1 million yearly from its deal with TCF Financial institution, which funds scholarships, career-planning sessions and counseling for students on their majors. Huntington Bancshares in 2012 devoted to a package of $25 million within direct payments to Ohio Condition University and another $100 million in lending and investments to aid the neighborhood near the college.
In the Education Department talks, the particular universities are arguing that their particular agreements with banks usually have “nothing to do with Title IV funds, ” and shouldn’t fall under the new rule, said Anne Gross, vice leader for regulatory affairs at the Nationwide Association of College and University Company Officers, a Washington-based trade team said in an interview with Bloomberg. She questioned whether the agency acquired authority to oversee those checking accounts.
“I don’t view the nexus with the Department of Education, ” Gross told Bloomberg. “That is banking regulation. ”