Last week, the CFPB released its twelfth annual report to Congress on college credit card agreements. The annual report is mandated by the CARD Act.
The CARD Act requires mandatory reporting to the CFPB by card issuers on agreements with institutions of higher learning or certain affiliated organizations (such as alumni associations). Like last year’s report, the new report returns to the Bureau’s pre-2016 practice of including in the annual report not only the information on college credit card agreements mandated by the CARD Act but also information on other financial products marketed to students.
Deposit and Prepaid Accounts. This section of the report focuses on contractual arrangements between institutions of higher education (IHE) and third party financial services providers to facilitate the disbursement of federal financial aid (also known as Title IV funds) to students (referred to as “college banking agreements.”) It discusses both deposit accounts offered pursuant to college banking agreements as well as the practice of linking such accounts to student IDs that can also function as debit or prepaid cards.
The CFPB’s key findings on deposit and prepaid accounts are:
- From July 1, 2021 to June 20, 2022, financial institutions generated over $17.3 million in revenue from over 650,000 student bank accounts.
- Although schools have an obligation under Department of Education regulations implementing Title IV ( 34 C.F.R. pt. 668) to ensure that deposit accounts are in the students’ “best financial interests,” which includes consideration of prevailing market rates, some financial institutions charge students fees, such as overdraft fees, that financial institutions are increasingly eliminating.
- The amount of fees charged to students annually varies by institution type, with accountholders at Historically Black Colleges and Universities, for-profit colleges, and Hispanic-servicing institutions paying higher-than-average fees per account.
This report also identifies the following potential consumer risks related to dual-purpose IDs:
- Some colleges place limitations on consumer access to prepaid card accounts such as: not allowing cash withdrawals or refunds from active accounts associated with student IDs and only granting account fund returns to students who graduate or withdraw from the university; only allowing refund requests within a certain limited timeframe, such as within 90 days following graduation or withdrawal and imposing processing periods of up to two weeks; and revoking access to prepaid card account balances if a student is expelled or subject to disciplinary action without providing clear guidance in their terms and conditions on revocations of student ID account balances, including financial aid disbursements and self-loaded funds, in the event of academic expulsion or disciplinary action.
- Colleges may require school debts to be satisfied for a student to receive a refund, thereby potentially resulting in students’ loss of access to personal funds that they planned to use for other purposes, including basic needs, or may charge processing fees for refunds that may be higher than students would pay if they used other types of financial products.
- Misleading marketing by colleges could cause students to believe that it is mandatory to use student ID cards to access their financial aid disbursements (such as on websites that imply the deposit or prepaid account option that accompanies the mandatory student ID card is the easiest way for students to receive their federal financial aid basic disbursements), which may influence students even if information about other options are provided in another context.
- Colleges may partner with nearby merchants to provide discounts, rewards, or credit if students pay with their dual-purpose student ID cards, which could influence students’ decisions about whether to use the school account and alter student spending habits in favor of merchants that promote student ID card usage. (The CFPB notes that little is known about whether schools enter into revenue-sharing agreements with merchants related to these marketing partnerships.)
Credit cards. The CFPB’s key findings on credit cards are:
- Although college students continue to rely on credit cards to help cover costs, marketing practices no longer appear to rely as heavily on in-person marketing as they did when the CARD Act was passed. (The CFPB urges regulators to continue to research evolving practices to identify areas where lenders may be aggressively marketing products to college students, such as through email communication or targeted online marketing.)
- In 2022, credit card issuers paid over $19.6 million to colleges and affiliated organizations for partnerships, with an average annual payment of approximately $138,000 from the issuer to the college or affiliate.
- The CFPB’s review identified 143 partnerships between colleges (or affiliated groups such as alumni associations) and credit card issuers, with 12 partnerships representing over 530,000 open accounts at year-end 2022. (The CFPB notes that the college market is dominated by alumni associations, constituting more than two out of three of all college card accounts).