Earlier this week, the CFPB released its sixth annual report on college credit card agreements, together with a new toolkit for schools to use when considering potential co-sponsorships of financial accounts, such as prepaid or checking accounts. The CFPB also announced that it sent warning letters to 17 schools regarding their compliance with the CARD Act requirement to publicly disclose their credit card marketing agreements.
Report. The annual report is required by the CARD Act. The CFPB’s findings in the new report include:
- Continuing a well-established trend, the number of schools and affiliated organizations (such as alumni associations) sponsoring credit card programs decreased in 2014 and the overall number of accounts issued under such programs also decreased in 2014.
- The amount of compensation paid by issuers to schools and affiliated organizations pursuant to these arrangements fell from 2013. (The CFPB notes that because some college agreements cover financial products other than credit cards, payments made by issuers under such agreements may not relate solely to credit card accounts.)
- For the second consecutive year, more than half the agreements reported to the CFPB by issuers were between an issuer and an alumni association and direct agreements between issuers and schools increased as a share of the reported agreements.
- Although the overall number of open credit card accounts issued under these agreements has fallen consistently since 2009, the number of new accounts originated annually has been increasing since 2012. However, approximately 75% of such account growth is attributable to agreements between issuers and alumni associations, which suggests most new accounts are issued to alumni rather than students.
- Based on the CFPB’s review of school websites, most institutions of higher education do not make copies of these agreements available on their websites and also fail to provide alternative reasonable means of access to those agreements.
Toolkit. The CFPB’s “Safe Student Account Toolkit” is intended to help schools evaluate potential co-sponsorships of financial accounts, such as prepaid or checking accounts. The toolkit includes a scorecard that schools can use to solicit information about fees and other features from prospective vendors as part of a RFP. It also includes a handbook to guide administrators in soliciting and evaluating proposals and in monitoring vendor performance. The handbook reviews new rules adopted in October 2015 by the Department of Education for schools that partner with vendors to distribute Title IV funds and/or sponsor or directly market accounts to students. The new rules are effective July 1, 2016. Although the toolkit states that schools “can voluntarily choose to use” the scorecard, the CFPB likely hopes that schools will feel reputational pressure to use it.
Warning Letters. The CARD Act requires colleges and universities to disclose their credit card marketing agreements. The Official Commentary to Regulation Z (Comment 1026.57(b)-1) provides that colleges and universities can satisfy the CARD Act requirement for public disclosure 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. In the warning letters, the CFPB states that it has found that making agreements available upon request rather than disclosing them on a website “put[s] schools at risk of violating the law.” According to the CFPB, the majority of colleges and universities in its “sample” failed to provide agreements when requested, presumably leading the CFPB to conclude that the alternative procedures were unreasonable because they were not effective. The letters go on to state that publication of an agreement on a school’s website “is proving to be the least burdensome and most straightforward means of complying with Federal law.” (The new report indicates that the CFPB reviewed a sample of 25 of the largest colleges with active credit card partnerships.)
The letters inform the schools to whom they were sent that a particular agreement the school had as of January 1, 2015, based on information in the CFPB’s database, “could not be publicly obtained using reasonable procedures and in a reasonable timeframe.” They also state that the CFPB has not yet determined that the school is in violation of the CARD Act but “we urge you to reconsider your approach to public disclosure.” (The CFPB has been urging 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.)
On January 15, 2016, Ballard Spahr attorneys will hold a webinar on the CFPB’s CARD Act report issued earlier this month from 12 p.m. to 1 p.m. ET. The webinar will include a discussion of the new report on college credit card agreements. The webinar registration form is available here.