CFPB finds expensive college-approved banking products
The Consumer Financial Protection Bureau (CFPB) has released a report detailing the fees and terms of banking products marketed to students in partnership with their schools. The report not only highlights the lack of transparency in partnerships between financial institutions and colleges, but also suggests that marketing deals may not follow rules set by the US Department of Education.
Key points to remember
- The CFPB released a report to Congress on college banking and credit card agreements.
- The report reveals that colleges and universities could direct their students to more expensive banking products with partner financial institutions.
- The report suggests that colleges lack the transparency and compliance required of educational institutions.
Colleges can encourage their students to open expensive bank accounts
The CFPB’s annual report to Congress highlighting college banking and credit card deals has raised questions for both the consumer watchdog agency and the Department of Education.
In the report, the federal agency highlights 11 account providers, including banks, credit unions and non-bank entities, that partner with 462 colleges and universities to offer more than 650,000 student accounts. The conclusions of the CFPB are as follows:
- Students are sold more expensive products: Financial and educational institutions engage in direct marketing efforts to promote accounts that cost more than comparable options, sometimes even compared to other accounts offered by the same providers.
- The best financial services provider charges a surprise fee: The report specifically calls out BankMobile, which provides nearly 70% of the accounts in question, for charging a monthly service fee of $2.99 on accounts with less than $300 in eligible deposits each month. However, the institution does not count financial aid installments, which can make up the bulk of a student’s deposits, as eligible deposits. Nearly $13 million of the more than $15 million in annual costs paid by students in the CFPB sample went to BankMobile.
- Many account options do not appear to meet Ministry of Education requirements: The Ministry of Education requires that students be allowed to choose how they receive their financial aid from a neutral list. Specifically, colleges cannot threaten students with financial aid disbursement delays if they choose an account that is not sponsored by the school. However, the CFPB has identified instances where students have been told that financial aid payments may not be as timely if they do not choose a university-sponsored account.
- Many chords do not appear to be prominently displayed as required: Almost 30% of the accounts in the CFPB sample involved arrangements in which the financial service provider made payments to the partner school. Schools are required to publish on their website the agreements they have with financial service providers, including the compensation exchanged between them and the average costs paid by students. However, the CFPB found that hundreds of schools appear to have failed to post disclosures in the required manner.
In response to the report, the Department of Education issued a Dear Colleagues letter reminding educational institutions of their obligations in their agreements and partnerships with financial institutions.
You can read the full CFPB report for more details on the federal agency’s findings.