• October 31, 2014

Consumer-Protection Bureau Opens Inquiry Into Student Financial Products

The Consumer Financial Protection Bureau announced on Thursday that it had opened an inquiry into financial products—such as college-affiliated bank accounts and student debit cards—that are marketed to students by their universities.

The federal agency hopes to gather more information about how deals are forged between colleges and financial institutions, according to Rohit Chopra, the bureau's student-loan ombudsman. The bureau published a request for comment that asks universities, students, and banks to shed light on what information is being shared, and how other student financial products are marketed to students and put in place.

"We want to determine whether students are getting a good deal," Mr. Chopra said. "This will inform how we work with schools and other policy makers to make sure this market is working well."

Before passage of the Credit Card Accountability, Responsibility, and Disclosure Act, in 2009, many students racked up heavy debts when financing some of their college expenses with easily-attainable credit cards. But once the act became law, students under the age of 21 could not be issued a credit card without a co-signer or evidence of an independent ability to pay the bills.

Since then, financial institutions' marketing practices on college campuses have also been restricted. Credit-card companies can no longer entice students to on-campus booths with free gifts, for example.

Additionally, agreements between credit-card companies and colleges, along with affiliated organizations such as fraternities, sororities, alumni associations, and foundations, are subject to public disclosure. The bureau maintains a database and releases an annual report on colleges' credit-card agreements.

But the same provisions do not apply to other financial products available to students, including student identification cards that double as debit cards, cards used to obtain scholarship and loan disbursements, and college-affiliated bank accounts.

The bureau is seeking information about what fees students are being charged to use such products, how campus marketing agreements are negotiated, and how frequently students use the products on a day-to-day basis.

Christine Lindstrom, the higher-education-program director at the U.S. Public Interest Research Group, praised the bureau in a written statement and said banks and other financial institutions often charged "high and unfair" debit-card fees.

Last August the Federal Deposit Insurance Corporation fined Higher One Inc.—one of the largest providers of campus debit cards, according to the bureau—for alleged unfair and deceptive practices aimed at college students.

"We need greater transparency and best practices," Ms. Lindstrom said, "when banks and financial firms are allowed to manage billions of dollars in financial aid so both students and taxpayers are protected."

subscribe today

Get the insight you need for success in academe.