As thousands of students prepare to flood college campuses, the government’s consumer watchdog is urging universities to disclose how much money they receive when banks promote debit cards, prepaid cards and checking accounts on their campuses.
Regulators say the terms of the accounts being offered to students are not always clear, and some are riddled with fees. Rather than presenting unbiased information to students, they say, schools are getting paid to act as middlemen for financial partners, a potential conflict of interest.
This week, the Consumer Financial Protection Bureau sent letters to 10 of the country’s largest universities urging them to publish the terms of their contracts. Letters went out to the University of Illinois, the University of Maryland, the University of Michigan, Michigan State University, the University of Minnesota, the University of Nebraska, Northwestern University, Ohio State University, Penn State University and the University of Wisconsin.
Northwestern spokesman Bob Rowley said the school website provides information about its relationship with US Bank, which offers a checking account linked to student ID cards.
“That’s where a parent or a student would go to learn more information,” Rowley said in an e-mail. “However, beyond that, as a private institution, we do not normally disclose details of our contracts with our private contractors.”
Initially, the CFPB asked banks to voluntarily post their contracts with schools, with limited success. The bureau turned its attention to the 14 schools that make up the “Big Ten” conference, which enroll more than half a million students. Eleven of those schools have bank ties, but only the University of Iowa’s partner, Hills Bank & Trust, posts the contract on its website.
In that deal, the bank agreed to pay the school more than $1 million in a five-year contract that includes a $125,000 signing bonus. Hills Bank & Trust, which did not respond to requests for comment, also offered the university a cut of the swipe fees – the money merchants pay banks each time a debit card is swiped – it made off of student debit card transactions. Seven percent of the fees collected by the banks goes to campus student organizations, and if the bank collects more than $50,000, the remainder goes to the school.
TCF Bank, which has arrangements with the University of Illinois, the University of Michigan and the University of Minnesota, has made some aspects of its contracts available for review. But those agreements lack information about how much the bank pays the schools to gain access to students in exchange for promoting its products and services.
In an email, University of Michigan spokesman Rick Fitzgerald said the school “takes the issue seriously,” but he was not available for further comment. No other university responded to requests for comment.
Schools have argued that the money they receive from financial partners helps keep their doors open, especially as states have cut their education budgets. Yet lawmakers and regulators remain uneasy about the relationship.
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 forced credit card companies to disclose contracts with colleges, but the law does not extend to checking account, debit and prepaid card agreements.
“Making these agreements available for all financial products shows schools’ and companies’ commitment to transparency, helping students and their families understand basic information about these products before you sign up,” said Rohit Chopra, the student loan ombudsman for the CFPB.