An analysis of roughly 500 marketing deals between colleges and large banks found that many deals allow for risky features that can lead students to rack up hundreds of dollars in fees per year. The Consumer Financial Protection Bureau’s (CFPB) latest report found colleges across the country continue to make deals with banks to promote products that have high fees, despite the availability of safer and more affordable products.
Around 10 million students attend a college or university that has made a deal with a financial institution where the college directly markets or allows the promotion of checking or prepaid accounts. These products are often endorsed with a college logo or linked to a student identification card. Many students also attend colleges with agreements to co-sponsor credit card accounts. These schools may get a share of the revenue generated from the products, and these agreements can offer financial institutions access to a new group of consumers.
Research has shown that financial products sponsored by colleges or universities can contain high or unusual fees, which can be a worse deal for students than what they can find shopping around on their own. Since Congress passed new consumer protections for credit cards in 2009, marketing partnerships between colleges and universities and financial institutions have largely shifted from credit cards toward sponsored debit and prepaid accounts.
In October 2015, the Department of Education established new student protections for the vast majority of college-sponsored financial accounts. These requirements include increased transparency and protections to help ensure accounts are negotiated in students’ best financial interests. As part of this effort, in September the Department of Education published a database of roughly 500 marketing agreements between schools and financial institutions so the public could review the various terms of agreements.
The Bureau’s analysis of these marketing agreements found that, despite new student protections and the availability of safer and more affordable accounts, some of the nation’s largest colleges and universities continue to maintain deals with large banks that allow for the marketing of products that may not be in the best financial interests of their students and that contain costly features. Key findings from the Bureau’s report and analysis of college marketing deals for prepaid and debit accounts include:
▪ Dozens of bank deals with colleges fail to limit costly fees: The Bureau found that dozens of deals with banks for school-sponsored accounts, including deals at some of the nation’s largest colleges and universities, do not place limits on account fees, such as overdraft fees, out-of-network ATM fees, or other common charges. These costly fees remain a concern at dozens of campuses, even as safer and more affordable alternatives are widely available at many other schools across the county.
▪ Some students may pay hundreds of dollars per year in overdraft fees: College students may pay hundreds per year in overdraft fees when using student banking products. This is particularly concerning given that a growing body of evidence suggests that small financial shocks—such as a few hundred dollars— can cause significant financial hardship for students and even deter college completion. Further, the Bureau’s analysis found that fees associated with school-sponsored accounts can collectively cost a college student body hundreds of thousands of dollars per year.
▪ Deals provide financial benefits for banks and schools but offer few, if any, financial benefits for students: The Bureau found marketing agreements between colleges and banks often contain extensive details about how the school and the bank can profit. Contracts frequently include details on revenue sharing and other payments made in exchange for exclusive marketing access to colleges’ student population. At the same time, many of these agreements do not require banks to offer safe and affordable accounts—and may drive students to high-cost products.
▪ Some schools fail to disclose key details of marketing deals with banks: Most colleges were required by the Department of Education to publicly disclose marketing contracts by Sept. 1, 2016. However, the CFPB found that some agreements publicly announced by banks or colleges were not included in the Department of Education’s public database of agreements, suggesting that some schools did not submit their agreements to the Department before the agency’s disclosure website launched.