In its fifth annual report on college credit card agreements, the CFPB takes financial institutions as well as colleges and universities to task for failing to adequately disclose their marketing agreements for campus financial products. The annual report is required by the CARD Act.
The CARD Act requires institutions of higher education to disclose publicly their credit card marketing agreements. The CFPB “found little indication of institutions proactively disclosing their credit card agreements.” The report states that the CFPB examined agreements covering 35 institutions and “[f]or the overwhelming majority of institutions within the sample, our review identified no information on their websites regarding the relevant agreement.” According to the CFPB, these results “suggest that institutions of higher education are generally not choosing a method of disclosure whereby students and members of the public can reasonably ascertain whether an institution has a current affinity arrangement.”
In the CFPB’s report on campus financial products released in September 2013, the CFPB found that campus financial product marketing arrangements have shifted away from credit cards towards student checking and debit or prepaid cards. In the new report, the CFPB states that “there are now more college debit and prepaid card agreements than credit card agreements.” As it did in the 2013 report, the CFPB once again suggests that the shift is the result of CARD Act and other federal law restrictions on credit card affinity arrangements. The CFPB’s press release on the new report notes that marketing arrangements have shifted “from credit cards toward other products such as debit and prepaid cards, which generally have fewer sunshine protections” and includes the following quote from Director Cordray: “Today, financial institutions are cutting more deals with colleges and universities to market student banking products that require less disclosure.”
In December 2013, the CFPB urged financial institutions to publicly disclose on their websites their marketing agreements for campus financial products other than credit cards, such as deposit accounts, prepaid cards and financial aid disbursement accounts. In the new report, the CFPB states that “as a general matter, issuers and institutions [of higher education] have not chosen to disclose in a readily accessible manner these deposit account, debit card, or prepaid card agreements.” The CFPB is apparently criticizing financial institutions for not disclosing these agreements on their websites.
The CFPB’s apparent position that adequate public disclosure of campus agreements requires the agreements to be posted on a website finds no support in applicable law. The Official Commentary to Regulation Z (Comment 1026.57(b)-1) expressly states that colleges and universities can satisfy the CARD Act requirement for public disclosure of their credit card marketing agreements either by posting the agreements on their websites or by making the agreements available on request, as long as the procedures for requesting the documents are reasonable and free of cost. And unlike credit cards, there is no federal law requirement at all for financial institutions to publicly disclose their marketing agreements or similar information for other financial products.
The CFPB’s December 2013 call for disclosure was accompanied by the threat that a financial institution’s failure to disclose its campus marketing agreements could make it a target for examination and the new report includes another veiled threat. The CFPB concludes the new report’s final section on compliance activity with the following statement: “Given the lack of transparency of these arrangements, as well as compliance problems related to institutions with significant market share, the Bureau will continue to carefully assess risks to consumers.”