The CFPB released its annual report on college credit card agreements (the fifth issued by the CFPB), together with a compliance bulletin regarding the obligation of colleges and universities under the CARD Act to publicly disclose their credit card marketing agreements.
Like the CFPB’s 2014 and 2015 annual reports, the new report consolidates the CFPB’s mandatory reporting under the CARD Act on college credit card agreements and “other information on financial products offered or marketed to students collected via our various market monitoring tools.” According to the CFPB, this consolidation of information “will further the Bureau’s mandate in a manner consistent with our goal to focus holistically on the suite of issues facing student financial consumers beyond directly financing the costs of their education.” For that reason, the CFPB “reframed” the report by titling it an annual report on “Student banking” and using one section of the report to discuss student debit cards and bank accounts and another section to discuss college credit cards. The CFPB also notes that in a departure from prior practice, it is releasing all current and historical data collected by the CFPB and Federal Reserve Board “in a single, consolidated dataset alongside this report” and intends to maintain this dataset on an ongoing basis. (The Fed submitted two CARD Act annual reports before responsibility for the report was transferred to the CFPB.)
Annual Report. The CFPB’s findings in the new report regarding debit cards and bank accounts, which are based on its analysis of approximately 500 marketing agreements for such products in the Department of Education’s (ED) newly-created database, include:
- In October 2015, the ED issued a final rule revising its Title IV Higher Education Act cash management rules to add new restrictions on financial products used to disburse credit balance funds to students. The revised rule requires a school to ensure that the terms of such products are “not inconsistent with the best financial interests of students.” The ED’s rule distinguishes between financial products offered under “tier one (T1) arrangements” and “tier two (T2) arrangements.” T1 arrangements are arrangements between schools and a third-party servicer under which the servicer performs one or more of the functions associated with processing direct payments of Title IV funds on behalf of the school to financial accounts offered by the servicer. T2 arrangements are arrangements between a school and a vendor that offers financial accounts through a financial institution and under which financial accounts are offered and marketed directly to students. Accounts offered under T1 arrangements are subject to various restrictions, including a prohibition on overdraft and point-of-sale fees. While acknowledging that such restrictions do not apply to accounts unless they are offered under T1 arrangements, the CFPB nevertheless appears to be suggesting that any marketing agreement a school enters into should either prohibit overdraft or other types of fees or place daily or other limits on such fees. The CFPB observes that “largely, accounts marketed under general marketing agreements do not feature the baseline protections against high fees afforded to students offered under [T1 arrangements]. This may raise questions for colleges and other stakeholders considering whether general marketing agreements that permit high fees are consistent with the best financial interests of their students.” The CFPB comments that marketing agreements generally do not require financial institutions to notify or seek approval from schools for future fee increases and some agreements do not require financial institutions to provide colleges with regular access to detailed data about fees. It notes that under the ED’s rule, a school can satisfy its obligation to provide accounts that are “not inconsistent with the best financial interests of students” by documenting that it conducts periodic reviews to determine if account fees are consistent with prevailing market rates. The CFPB suggests that schools would be “in better position to advocate for protections and more favorable terms” and have “a better ability to protect students from excessive fees” if they are provided with advance notice of changes to terms related to fees and detailed information on the amount and frequency of fees charged to students.
- Noting that the ED’s rule requires schools to maintain the ability to terminate a marketing agreement based on student complaints, the CFPB comments that most agreements it reviewed did not require financial institutions to establish a system to identify, track and resolve student complaints related to school-sponsored products or provide periodic complaint reports to schools. The CFPB observes that this practice “could better-position the college to analyze and act on information contained in these complaints.”
The CFPB’s findings in the new report regarding college credit cards, which is based on the agreements and related information that issuers are required to submit annually to the CFPB, include:
- Continuing a trend that began in 2009, the number of college credit card agreements, the total number of associated credit card accounts open at year-end 2015, and the amount paid by issuers to schools and affiliated organizations (such as alumni associations) declined again in 2015.
- While agreements between an issuer and an alumni association represented a smaller share of agreements than in 2014, such agreements still represented more than half of all agreements reported to the CFPB and increased their predominance in other metrics, representing two-thirds of all associated accounts and three-quarters of all associated payments.
- There were 254 agreements in effect as of year-end 2015. The CFPB contrasts with the Department of Education’s calculation that in 2015 at least 832 colleges had agreements covering the provision of debit or prepaid card services to their students.
Compliance Bulletin. The CARD Act requires colleges and universities to publicly 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.
The bulletin notes that in its December 2015 CARD Act report, the CFPB reported that after reviewing a sample of 25 colleges and universities with the largest number of accounts subject to active credit card agreements, it found that most schools did not make copies of these agreements available on their websites and most failed to provide alternatives ways to access the agreements. The bulletin warns schools that they “put themselves at high risk of compliance failure when they do not use website disclosure.” It states that based on the CFPB’s market monitoring and investigations, “[e]xcept in rare cases, schools that did not publish agreements on their websites, but rather instituted other procedures and mechanisms instead, created delays and burdens to access the information.” The CFPB advises schools, “[g]iven this clear record,” to “begin publishing these agreements on their websites without delay if they are not already doing so.”
The bulletin also discusses the treatment of agreements that are no longer in effect, stating that while the CFPB has not interpreted how the CARD Act’s disclosure requirement applies to such agreements, “disclosure of such agreements is consistent with the transparency goals underlying the [requirement] where such agreements continue to be used to market or issue cards to students.” The CFPB recommends that schools continue to provide students with access to such agreements until the following events have occurred: (1) the agreement’s stated term has expired, (2) the card issuer is no longer obligated to make any payments to the school under the agreement, and (3) cards are no longer marketed or issued to students under the terms of the agreement.