CFPB to look at college-backed financial products aimed at students

Chris May holds his Georgia State University ID , which doubles as a Discover debit card. May says he uses the ID like a credit card for regular purchases and ATM withdraws.

The college ID card ain't what it used to be. Ask Chris May, who lives in Atlanta and recently enrolled at Georgia State University. Like many students, the 29-year old relies on financial aid. In years past, we would have waited for a paper check or a refund from the school’s business office. But Chris’s student ID has all that cash pre-loaded.  It’s half ID card, half Discover debit card.

"I’ve been able to get gas with it and eat with it," he says, adding that it's been helpful and convenient. 

For Chris and about 40 percent of U.S. college students, their student IDs not only get them into the library, but also pay for dinner and a movie.  But there’s growing concern over how colleges and banks work out those co-branded agreements, prompting an inquiry by the Consumer Financial Protection Bureau.

"Are school marketing agreements with banks and credit unions letting students get a better deal," asks Rohit Chopra, student loan ombudsman at the CFPB. "Or, are they sometimes worse off?”

Chopra says colleges are required to disclose agreements they have with banks for traditional credit cards. But not so with bank cards pre-loaded with student aid. And the cards can be big business for colleges and universities. Arizona State reportedly earns $15 for each new student it links to a debit account offered by MidSouth Bank. 

At Ohio State, a deal with Huntington Bank is raking in $25 million over the next 15 years.

"We ensure there is no marketing of credit products," says Geoff Chatas, Ohio State's CFO. "We’re asking and working with the financial institution to provide financial literacy education. I think when you look at all of those things together, you see that these can be structured in a very positive way."

Chatas says the Huntington Bank/OSU deal is funding things like classroom renovations and the school’s endowment. But not all bank marketing deals are good for students, says the Public Interest Research Group.

In a recent report, PIRG found students often pay fees big and small, eating away at money that's supposed to be set aside for tuition.  A company called Higher One is one of the biggest players in the game, holding card agreements with more than 500 campuses with a combined enrollment of more than 4.3 million students. In August, Higher One settled with the FDIC over unfair and misleading practices.  It paid restitution to 60,000 students. Teresa Valerio Parrot, a spokeswoman for Higher One, says the company will not comment until after the CFPB inquiry.  

Another big player in the college debit card field is Wells Fargo, which handles college-related debit cards for some two-million students. “We want students to have a good experience so they continue to choose us," says Erin Constantine, a senior VP with the bank.

Constantine says getting young adults’ business early can lead to long-term gain for the bank.

“It starts out with a checking account, a savings account, but then they continue to bank with us as their financial needs change,” she says, adding that debit cards teach students financial responsibility.

The National Association of College and University Business Officers, or “NACUBO,” also says agreements between banks and universities can be beneficial. The deals often streamline the financial aid process for college business offices, says Liz Clark, NACUBO's Director of Congressional Affairs. 

 “At the end of the day, we don’t want to see the baby thrown out with the bathwater. We think that these programs bring a lot of benefits to students and campuses,” says Clark.

NACUBO has published a list of “best practices” to serve as a guide on how schools should handle co-branding IDs and debit cards. The organization also plans to file comments with the CFPB. Parents, students, colleges and financial institutions have until March 18th to offer input. Based on what it hears, the CFPB will decide later this year what regulation, if any, could be warranted.   

About the author

Jim Burress is a reporter for WABE in Atlanta.

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