U. T. consumer protection officials last 30 days called for financial institutions to publicly reveal their agreements with colleges to advertise debit cards and other products to learners.
The arrangements — which have increasingly come under scrutiny from consumer advocates, federal agencies and lawmakers — often include financial companies paying colleges to provide institution-branded student ID cards that will double as a debit card or separate debit cards that students use to gain access to their federal financial aid money.
The partnerships provide colleges an additional source of revenue while they provide banks and other financial institutions access to a potentially lucrative pool of new customers.
But the conditions of such agreements should be made publicly available, Consumer Financial Safety Bureau Director Richard Cordray mentioned in December.
“Students and their families should know if their school, regardless of whether well-intentioned or not, is being compensated in order to encourage students to use a specific accounts or card product, ” Cordray said in a statement. “When banking institutions secretly give kickbacks to institutions, they are engaging in risky practices. ”
The consumer watchdog bureau mentioned Tuesday that it may consider the failure of a financial institution to disclose its plans with colleges as an increased risk to consumers, which could, in turn, raise the likelihood that the institution would receive more scrutiny from the bureau.
Officials will be formally asking banking institutions about the transparency of their agreements along with colleges next year, according to a article by CFPB Student Loan Ombudsman Rohit Chopra.
“We’ll be requesting financial institutions about whether existing contracts are made available to students and households in a clear and conspicuous place on their company’s website, ” Chopra wrote. He said that according to the survey of college officials, the details of 69 percent of debit credit card arrangements are already available to the public. But , he added, they can be difficult to get and may require filing an open records request under state law.
One the largest providers of college student debit cards is HigherOne. The Connecticut-based company has drawn criticism from student advocates and federal regulators for its fee structure. (The company is in the final stages of deciding a class action lawsuit related to its fees for $15 million).
Mark Volchek, the chief executive officer of HigherOne, said in the statement Tuesday that the company was “generally in support of the open disclosure of contracts with campuses regarding consumers so long as the standard for disclosure is applied equally to all third-party servicers. ”
“Today, nearly all our contracts are already open to the public, ” he added. A spokeswoman for the company clarified that the contracts are available to the public through state freedom of information laws. Private establishments are generally not subject to state open records laws.
Debit cards, prepaid credit cards and other financial products that are marketed in order to students are not subject to the same rules as college-affiliated credit cards, which Our elected representatives cracked down on in the 2009 CARD Act. That law requires banking institutions to disclose their agreements with schools to the CFPB, which makes them available online.
Since that requirement went into effect, the number of colleges along with agreements with credit card providers provides plummeted by 41 percent, from 1, 045 in 2009 to 617 in 2012, according to the CFPB’s latest numbers released Tuesday. In its annual statement on campus credit card agreements, the bureau found that not only experienced the number of such arrangements dropped but that fewer students were starting college credit cards. That figure dropped by 18 percent between 2009 and 2012.
In an October report, CFPB officials expressed concern that as the number of credit card contracts dropped, financial institutions were marketing other products, like campus debit cards, that are included with fewer restrictions.
The plans to provide debit cards and checking accounts may mirror some of the problems that earlier arose with private student loan kickbacks and predatory credit card marketing on campuses, the bureau concluded after a seven-month inquiry into the contracts.
Rep. George Miller, a Ca Democrat, who has raised concerns about campus debit cards, echoed those problems in a statement Tuesday that recognized the CFPB’s call to make the contracts public.
“This is not the 1st time that financial institutions have targeted learners on campus, ” he mentioned, citing the student loan and campus credit card controversies. “Financial institutions have never learned from their past transgressions and continue to offer colleges lucrative monetary incentives to hand over the keys towards the campus. ”
Besides the CFPB’s focus on campus debit credit card agreements, the Education Department has also mentioned it plans to create new regulations about how federal student aid can be disbursed on campus debit cards. A negotiated-rulemaking panel will begin meeting in February to hammer out all those regulations, according to Inside Higher Ed.