NEW YORK (MainStreet) — Richard Cordray, the director of the Consumer Financial Protection Bureau (CFPB), alerted financial institutions December 17 about the pitfalls involved with paying colleges and universities to market their financial products and services including bank accounts, prepaid cards and debit cards.
The policy was announced in a blog post the same day by Rohit Chopra, CFPB's ombudsman. The CFPB also announced that it is asking financial institutions to make these arrangements transparent. For that purpose they prepared a report on college credit card agreements. This report shows that such arrangements have declined from 2011 to 2012.
Congress took an initial step to make consumers aware of these arrangements in 2009. It passed the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act). This requires credit card issuers to report to the CFPB the terms and conditions of any agreements between a college credit card company and the colleges. This includes the number of credit card accounts, amount of payments made to the company, the number of new accounts and any agreement between the company and the college or university.
But there is a new trend among financial institutions. They may be moving away from credit cards, but they are zeroing in on other products and services. This circumvents the CARD Act which is limited to credit cards.
But the CFPB is urging financial institutions to make any arrangements they have available for inspection by students and their families. The organization says it shows a commitment "to transparency when marketing deposit accounts, prepaid cards, financial aid disbursement accounts and other financial products." By not publicly revealing these arrangements, the CFPB says the financial institutions are raising "potential consumer protection risks."
The same day as Cordray's statement, the National Association of College and University Business Officers (NACUBO), issued a release announcing a "best practices" guide for colleges and universities. The guide is essentially a consumer advisor. It will be sent to the chief business officers across the country. The organization NACUBO wants colleges to identify banking services that "offer low- or no-fee options for students, calls for the disclosure of contracts with third parties offering debit card services to college students, and promotes competitive selection processes when engaging vendors to handle student financial transactions." The organization noted that electronic transactions are prevalent in all aspects of a student's life. Therefore they want students to be savvy consumers.
Colleges and universities benefit from electronic funds transfer. The NACUBO notes that third-party financial institutions can assist colleges and universities with data management, compliance and identity and information protection among other things.
"Higher education institutions are constantly exploring ways to offer improved service to students and their parents, as well as find cost savings for the institution, and campus debit cards have evolved to provide an administratively efficient, cost-effective, customer-oriented product," said NACUBO President and CEO John Walda. "At the same time, colleges and universities need to ensure that students' consumer interests are protected as they shift more financial transactions to third-parties."
The survey indicated that 69% of debit card arrangements are already available to the public. But they noted that "finding these agreements can be troublesome." A formal request under state open records laws to see them may be necessary in some instances.
The CFPB recommends that access to these arrangements be made easier to "increase the public's confidence that these agreements are structured to help students build a bright financial future."
—Written by Michael P. Tremoglie for MainStreet