The Consumer Financial Protection Bureau (CFPB) released a report detailing the fees and terms of banking products marketed to college students in partnership with their schools. The report not only highlights the lack of transparency in partnerships between financial institutions and higher education institutions, but also points out that marketing agreements may not comply with the rules set by the US Department of Education.
Colleges can encourage their students to apply for expensive bank accounts
The CFPB ‘s annual report to Congress, which highlights college bank and credit card billing, raised some questions for both the Consumer Protection Agency and the Department of Education.
In the report, the federal agency highlights 11 account providers that include banks, credit unions and non-banks working with 462 colleges and universities to offer more than 650,000 student accounts. The conclusions of the CFPB are as follows:
- Students are marketed with more expensive products: Financial and educational institutions engage in direct marketing to promote accounts that cost more than comparable options – sometimes even compared to other accounts offered by the same providers.
- Major financial services providers charge staggering fees: The report specifically notes that BankMobile, which powers nearly 70% of the accounts in question, charges a monthly service fee of $2.99 for accounts below $300 in qualifying deposits a month. However, the institution does not count grant disbursements, which may include most student deposits, as qualifying deposits. Nearly $13 million of the more than $15 million in annual expenses paid by students in the CFPB sample was paid to BankMobile.
- Many account options appear not to meet Department of Education requirements: The Department of Education requires students to choose from a neutral list how they will receive their financial aid. More specifically, colleges cannot threaten students with delays in scholarship disbursement if they choose an account that is not sponsored by the school. However, the CFPB has identified instances where students have been advised that financial aid payments may not be as timely if they do not opt for a university-sponsored account.
- Many agreements do not appear as mandatory: almost 30% of the accounts in the CFPB sample were agreements in which the financial service provider made payments to the partner school. Schools must publish on their websites the agreements they have with financial service providers, including the fees exchanged between them and the average costs paid by students. However, the CFPB found that hundreds of schools did not appear to have released the disclosures in the required manner.
In response to the report, the Secretary of Education released a letter to dear colleagues reminding educational institutions of their obligations in their agreements and partnerships with financial institutions.
You can read the CFPB ‘s full report for more details, read the federal agency’s results.