Watchdog Agency: College-Endorsed Financial Services More Costly for Students
Credit: Samuel Corum / Bloomberg / Getty Images- Students often face “direct marketing efforts” from their colleges for particular financial institutions, according to a CFPB report.
- Those deals sometimes lead students to accounts that are more costly than similar accounts offered by the same provider, according to the CFPB.
- Some deals with schools even allow providers to charge students multiple hefty overdraft fees per day, costing roughly $175, according to the report.
- Schools’ disclosures about their deals with banks are often not prominently posted on college websites as required, the CFPB found.
Students often face higher costs from financial providers promoted by their college, according to a new Consumer Financial Protection Bureau (CFPB) report.
The watchdog agency reviewed data on 11 banks, credit unions, and nonbank financial service providers that, in total, offered more than 650,000 student accounts via partnerships with 462 colleges and universities between 2020 and 2021.
The CFPB found that students often face higher costs from those accounts, even compared with other accounts offered by the same financial institution. Students often face “direct marketing efforts” from their college for those accounts, according to the CFPB.
“Some providers’ agreements with schools allow them [to] charge students five overdraft or NSF (non-sufficient funds) penalties, per day, costing $175,” a CFPB release reads.
The report also found a lack of transparency by some colleges when it comes to their deals with banks and other financial providers.
Roughly 30% of the agreements reviewed by the CFPB involved a financial provider making payments to a school. Schools are required to post those agreements publicly on their website, but the CFPB review found that “hundreds of schools did not appear to have posted the disclosures in the public and conspicuous manner required.”
Many students are directed to account options that don’t appear to meet Department of Education standards around cash management, according to the CFPB report. Those regulations require options to be presented in a “neutral manner.”
“Many college students trust that schools have their best interests in mind,” CFPB Director Rohit Chopra said in the release. “While colleges have substantial bargaining power to obtain superior terms and pricing for their students, we find that many college-sponsored financial products cost students more than accounts that are readily available on the open market.”
Chopra said the report on student banking products “suggests that there is more work to do to ensure that students are not steered into school-endorsed products with junk fees.”
The report found that the number of agreements, accounts, and payments from credit card issuers and colleges declined from more than 1,000 partnerships in 2009 to just 155 by the end of 2021.
Department of Education Steps Up Oversight
The Department of Education released a “Dear Colleague” letter last Thursday to remind colleges of requirements around deals with financial institutions.
“We are aware of certain practices that may pose risks or excessive costs to students,” that letter reads. “Institutions have a responsibility to protect their students when it comes to financial products.”
Education officials also outlined several steps the department plans to take in a bid to protect students from burdensome financial agreements.
That will include bringing on additional staff to monitor third-party servicers, reviewing colleges’ agreements with financial institutions, partnering with the CFPB to keep tabs on “emerging trends in the financial market,” and boosting data collection.
“These efforts will take place over multiple years as the Department builds its capacity to effectively oversee college banking arrangements,” an Education Department blog post reads. “Colleges offering certain financial products to students have a duty to protect students’ best financial interests.”