On April 22nd, Senator Warren, nine other Senators, and 14 members of Congress sent a letter (the “Letter”) to Secretary of Education Duncan urging that the Department of Education (DOE) exercise its rulemaking authority to regulate, limit or outright ban certain practices when colleges enter into agreements with financial providers to offer debit cards, prepaid card and other products which are used for purposes of distributing federal student financial aid to students.
The Letter was sent in response to and in support of the ongoing efforts of the DOE’s Program Integrity and Improvement Negotiated Rulemaking Committee (the “Committee”) over the last several months to consider, among other things, revisions to the DOE’s Title IV’s cash management rules (34 CFR 668, Subpart K), including those relating to acceptable methods of disbursement of eligible Title IV funds to students (34 CFR 668.164). The CFPB has actively participated in supporting this negotiated rulemaking process, including by providing a presentation and related materials to the Committee during its negotiation session in March, regarding the CFPB’s perspectives on financial products marketed to students. Such materials reference and reflect earlier CFPB publications and statements relating to this topic, such as the CFPB findings on campus banking products released in October, 2013 , and the CFPB’s call for voluntary public disclosure of college/university financial product marketing agreements.
More specifically, the Letter supports the creation of rules that, among other stated suggestions, would: (i) prohibit colleges from partnering with banks or other financial providers to offer debit or other financial card products that would charge fees in connection with the disbursement or use of Title IV aid; (ii) ban revenue sharing, so that the products are selected by colleges “based on their merits alone”, rather than college revenue potential or other considerations; (iii) require website publication of college agreements with banks, with a requirement of annual reporting to relevant governmental agencies (including the CFPB) for review; and (iv) require that such rules be applicable to “any college-sponsored account into which Title IV funds are transferred or deposited.”
The Letter references the concerns expressed in the Government Accountability Office (GAO) study released on February 18th, which has been previously discussed in the CFPB Monitor, including the perceived need to deal with the “high” fees sometimes associated with such products, appropriate ATM access for students, and the “undue influence that colleges exert in pushing students to opt into a school-endorsed debit card or checking account.”
The Letter serves to further underscore that financial institutions entering into and administering these debit or prepaid card sponsorship agreements with colleges should be planning now for the possible advent of new restrictions on their practices and agreements terms, including the distinct possibility of public disclosure of the agreements themselves.