The bureau’s report sheds light on the exorbitant fees and unfavorable terms of these financial products, especially among Historically Black Colleges and Universities, for-profit colleges, and Hispanic-serving institutions.
01/09/2024 3:20 P.M.
2 minute read
The Consumer Financial Protection Bureau issued a report last month highlighting that many college-sponsored financial products have higher fees and worse terms and conditions compared to typical market products.
According to the CFPB, college-sponsored deposit accounts often come with fees that surpass prevailing market rates, a stark contradiction to the Department of Education’s rules aimed at safeguarding students’ interests.
“Many students get their first credit card or deposit account when they enroll in college, and banks know that consumers are unlikely to move to a different provider once a product is integrated into their financial life,” said CFPB Director Rohit Chopra. “Schools should take a hard look at the fees and terms of the products they pitch to their students and alumni.”
The report underscores the lucrative nature of partnerships between financial institutions and colleges. Colleges frequently endorse sponsored and co-branded financial products, such as credit cards and deposit accounts, creating a situation where students are inclined to accept their school’s recommendations upon enrollment. This lack of competitive pressure allows financial institutions to maintain higher fees without fear of losing customers. The financial institutions involved often pay substantial sums to colleges, including marketing deals and per-signup kickbacks.
This isn’t the first time the CFPB has raised concerns about the financial products endorsed by colleges. In 2022, the College Banking and Credit Card Agreements report highlighted exorbitant fees associated with student banking products. Despite this warning, the bureau’s report reveals that colleges continue to employ marketing strategies that might mislead students into choosing financial products that are not in their best interest.
The report’s findings showcase a range of issues that put students at a disadvantage. Some colleges’ financial product partners charge students high or atypical fees, including overdraft and non-sufficient funds fees that most major banks have moved away from in recent years. This can lead students into accounts that cost significantly more than what is available in the open market.
Additionally, the report indicates that the fee burden on students varies by institution type, with Historically Black Colleges and Universities (HBCUs), for-profit colleges, and Hispanic-serving institutions (HSIs) facing higher-than-average fees per account. Additionally, some financial institutions impose unexpected fees at graduation or when students reach a certain age, catching them off guard and leading to unanticipated financial burdens.
The CFPB plans to continue scrutinizing these practices and identifying potential violations of federal consumer financial protection law. The 14th annual report to Congress, in compliance with the CARD Act, emphasizes the need for colleges to reassess their financial partnerships for the benefit of their students.
Remember, subscribe to ACA Daily and Member Alerts under your My ACA profile when logged in to acainternational.org to receive updates on the ACA Huddle.