On February 13, CFPB Student Loan Ombudsman Rohit Chopra published on the CFPB’s blog an update on the CFPB’s review of student financial products and raised concerns about certain marketing arrangements between financial institutions and colleges and universities, and the level of transparency associated with those agreements and the products marketed under them. He specifically questioned financial institutions that “generate a significant amount of their revenue on these products while students are currently in school.” On the same day, the GAO published a report on student debit and prepaid cards and marketing agreements, which recommends that Congress take steps to increase transparency.
CFPB Student Financial Products Update
In December, CFPB Director Richard Cordray urged financial institutions to voluntarily disclose on their websites agreements with colleges and universities to market bank accounts, prepaid and debit cards, and other products to students. Mr. Chopra states that the CFPB also collected agreements available in the public domain by checking state open records databases and other websites where such agreements are disclosed.
Although it is unclear whether this collection produced a representative sample, Mr. Chopra states that the CFPB identified “several agreements” pursuant to which financial institutions provide direct payments to schools in exchange for use of the schools’ logos. Other agreements, the CFPB claims, provide bonus payments to schools based on whether students sign up for a checking account marketed on campus. A third category of agreements provide colleges discounted or free services in exchange for allowing a financial company to market products to students.
Mr. Chopra acknowledges that many financial institutions offer good products at competitive prices, but he reinforced the CFPB’s belief that voluntarily disclosing marketing agreements “is a sign of a financial institution’s commitment to transparency” and added that “[r]esponsible financial institutions also want students to know they don’t have to choose their product if they don’t want to.”
Mr. Chopra encouraged students, schools, financial institutions, or other who wants to share information about the availability of these agreements to email the CFPB. He also encouraged students to submit complaints about student loans, checking accounts, or credit cards.
GAO Report On Student Financial Product Transparency
GAO examined the functions of college cards and the characteristics of the schools and card providers offering them, and assessed the benefits and concerns associated with student debit and credit cards. The GAO reported that as of July 2013, 11 percent of U.S. institutes of higher education are party to an agreement to provide debit or prepaid card services to students. Those schools tend to be larger than institutions that do not offer such services, and most offered students the ability to receive federal aid on a card.
The GAO identifies concerns about fees, ATM access, and neutrality. Specifically, the GAO stated that two large card providers charge a fee for card purchases that use a PIN versus a signature, and that total fees paid by students is unknown. With regard to ATM access, the GAO found that Education Department regulations regarding access to free ATMs or branches for students who receive federal aid is insufficient and should be more specific to ensure free access to federal funds on cards. Finally, the GAO believes that marketing agreements may create incentives for schools to influence student choice of financial service provider, and that increased transparency could help ensure that terms of such marketing agreements are fair and reasonable for students and do not create conflicts of interest for schools.
To achieve this increased transparency, the GAO recommends that Congress require financial firms providing debit and prepaid card services to colleges to publicly file their marketing agreements. In addition, the GAO would like the Education Department to (i) specify what constitutes convenient access to ATMs or bank branch offices for students receiving federal student aid funds and (ii) develop requirements for schools and card providers to present neutral information to students about their options for receiving federal student aid funds.