The Consumer Financial Protection Bureau urged a number of financial institutions on Tuesday to disclose how much money they are paying colleges and universities to directly market their products and services to students.
Consumer Financial Protection Bureau (CFPB) Director Richard Cordray arrives on Capitol Hill in Washington, Tuesday Nov. 12, 2013. The CFPB is pressuring financial institutions to release information about campus debit card arrangements with colleges and universities, which the agency says doesn't always offer the best deal for students. (AP Photo/Jacquelyn Martin) | ASSOCIATED PRESS
"Students and their families should know if their school, whether well-intentioned or not, is being compensated to encourage students to use a specific account or card product," CFPB Director Richard Cordray said in a statement. "When financial institutions secretly give kickbacks to schools, they are engaging in risky practices."
Many schools have agreements with financial institutions to push their deposit accounts, prepaid cards and debit cards on students, in some cases linking an account with the student's school-issued ID. Colleges, in turn, earn money either in a flat fee or based upon how many students open accounts. Currently, financial institutions are only required to disclose credit card agreements with schools, meaning that many students do not fully understand these and other financial arrangements, according to the CFPB. Although 69 percent of debit card deals are available to the public, the CFPB said sometimes an open records request must be filed in order to get access.
Meghan Johnson, a sophomore at Iowa State University, complained in an email that there is only one institution to choose from in opening an account conveniently linked to a student ID: U.S. Bank.
"I think that we need more options offered to us as college students at Iowa State," Johnson said. "When there is only one checking/debit option, then we are captive to whatever fees are pushed on to us. If there were more banking options available, then we can shop around and find the account with the fees and other features we want."
ISU told The Huffington Post they earned $250,000 this year from U.S. Bank to turn the student IDs into debit cards, and students are not required to open an account with the bank. ISU used the compensation to cover the cost of university ID cards, a spokesman said.
The University of Minnesota collects $1 million annually through an arrangement with TCF Bank. The University of Illinois at Urbana-Champaign told HuffPost it nabs $400,000 annually from TCF Bank. Both schools said funds from TCF are reinvested in scholarships.
But aside from the total amount paid to the schools, a 2012 report from the U.S. Public Interest Research Group found that students often paid more in fees with the debit cards associated with the university than they would pay if they'd simply gone to a local bank. The CFPB backed up that report with their own review, concluding in September 2013 that colleges "may be encouraging or even requiring our young people to use financial products that do not offer the best deals."
In September, a group of seven Democratic lawmakers issued a letter to executives at nine large financial institutions, requesting details on their college arrangements, including the amount of fee revenue they've generated thanks to those deals, and the amount of cash and gifts they've supplied to the schools and their employees. These same details are what the CFPB is now suggesting that financial institutions should disclose.
Source: Huffington Post | Tyler Kingkade