The Consumer Financial Protection Bureau (CFPB) is calling on financial institutions to publicly disclose agreements with colleges and universities to market debit, prepaid, and other products to students.
Currently, institutions only make these disclosures about college credit cards. The CFPB also released its annual report on college credit card agreements, which showed a decline of 23 percent in college agreements from 2011 to 2012.
“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,” said CFPB Director Richard Cordray. “When financial institutions secretly give kickbacks to schools, they are engaging in risky practices.”
A lack of transparency in the student loan and credit card markets led Congress to enact reforms to help the public better understand the marketing partnerships between colleges and lenders. In 2008, Congress passed a law requiring schools to disclose preferred lender arrangements with student loan providers and establish a code of conduct for school financial aid officials.
In 2009, Congress passed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, which requires issuers to disclose to the CFPB the terms and conditions of any college credit card agreement, the number of new credit card accounts, and the compensation paid by issuers to institutions of higher education. The CFPB is required to write an annual report to Congress about the information provided by card issuers about these agreements.
In researching this report, the CFPB found that:
- Fewer college card agreements are in effect: The number of college card agreements in effect has declined by 41 percent between 2009 and 2012. In 2009, 1,045 college card agreements were in effect for over two million accounts, compared to only 617 agreements for just over a million accounts in 2012.
- Institutions of higher education are paid less by credit card issuers: In 2009, colleges and universities were paid $84,462,767 by credit card issuers. In 2012, that figure was $50,396,103—a decline of about 40 percent.
- Fewer new college accounts are being opened: While the number of college card issuers has increased from 18 to 23 in recent years, fewer new accounts are being opened. In 2009, there were 55,747 new accounts opened. In 2012, that number decreased by 18 percent to 45,519.
Call for Transparency
Earlier this year, the CFPB launched an inquiry into financial products marketed to students enrolled in institutions of higher education. In addition to credit card agreements, many colleges and universities also have arrangements with financial institutions related to deposit accounts, prepaid cards, debit cards, and other financial products. In September, the CFPB hosted a public forum to present its initial findings, based on public comments and other market information. These initial findings included:
- Financial product marketing partnerships have shifted to student checking and debit and prepaid card products. These partnerships outnumber college credit card agreements.
- Arrangements between financial institutions and institutions of higher education on many student banking products are not well-understood.
According to the results of a 2012 survey conducted by the National Association of College and University of Business Officers and submitted to the CFPB, the majority of college debit card arrangements are already available to the public. But finding the details of these agreements can be a challenge for consumers and may even require that consumers file a formal request under state open records laws.
The CFPB prioritizes its supervisory examinations based on the risks posed to consumers. When institutions do not make these college financial product arrangements transparent to students and their families, they may increase such risks.
The college credit card agreements report is available at: http://www.consumerfinance.gov/reports/2013-college-credit-card-agreements/
The CFPB’s public database on college credit card agreements is available at: http://www.consumerfinance.gov/credit-cards/college-agreements/
The CFPB’s presentation at the Banking on Campus Forum is available at: http://files.consumerfinance.gov/f/201309_cfpb_banking-on-campus-forum.pdf
The CFPB also published a consumer advisory for students who receive scholarship and student loan proceeds on college-affiliated card products.
As part of the Paying for College platform, the CFPB developed a guide for students and their families on how to choose a student checking or debit card product. Managing Your College Money is available at: http://www.consumerfinance.gov/paying-for-college/manage-your-college-money/
More information is available at: consumerfinance.gov/students
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.
