Bureau Seeks Comment on Scorecard to Help Schools Avoid Promoting Products with Tricks and Traps
WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) is seeking input on a “Safe Student Account Scorecard” that would help colleges to avoid partnering with financial institutions that offer checking and prepaid accounts with tricks and traps. The scorecard would help colleges access upfront information about fees, features, and sales tactics before agreeing to a sponsorship. The scorecard would help create a level-playing field for all financial institutions that offer affordable products, regardless of their ability to pay bonuses to schools.
“An important issue for young people is how best to manage their money while they are still in school,” said CFPB Director Richard Cordray. “Because of the influence schools may have on the financial products students choose, we are working to arm them with the information they need to negotiate safe and affordable products for students.”
The Request for Information (RFI) about the Safe Student Account Scorecard can be found at:
https://www.consumerfinance.gov/students/request-for-information-regarding-an-initiative-on-safe-student-banking/
Many colleges make deals with financial institutions, where the college helps with or allows the promotion of credit, debit, or prepaid cards, sometimes endorsed with a college logo or linked to a student identification card. Colleges, either directly or indirectly, typically get a share of the revenue generated from the cards, and financial institutions have access to a new group of consumers. The CFPB has identified agreements where financial institutions offer royalty payments for use of college trademarks or bonuses based on the number of student account sign-ups. Financial institutions may also offer discounted, or even completely free services, in exchange for marketing access on campus.
The Credit CARD Act of 2009 (CARD Act) restricted financial institutions from using certain types of credit card marketing practices on college campuses and requires that agreements between credit card issuers and colleges be publicly available. But marketing partnerships between colleges and banks have shifted over the past five years. Agreements to market student debit and prepaid cards have surpassed the number of agreements to market student credit cards. Forty percent of college students attend schools with agreements to provide debit or prepaid cards. A CFPB analysis of one university system revealed that the school-endorsed financial product received the highest adoption by students receiving financial aid.
Many colleges use a transparent, competitive bidding process to establish their relationships with financial institutions. However, colleges may find it challenging to compare proposals because they lack clear information on specific account features and fees. Today, the Bureau is seeking input on a “Safe Student Account Scorecard,” which colleges can use to evaluate the student costs and benefits of products by accessing information about fees, features, and marketing practices. The scorecard specifically asks financial institutions to provide schools with:
- A clear description of product fees and features: The draft scorecard specifically seeks information from financial institution partners on whether there is a fee for certain features, such as access to mobile banking and electronic statements, and the amount of any fee. In addition, the scorecard can help determine whether financial institutions charge any non-standard fees, as well as the availability of in-network ATMs. The scorecard also seeks to have financial institutions explain any other fees they may charge, such as a prepaid card reload fee or balance inquiry fee.
- Full disclosure about the financial institutions’ marketing practices:The draft scorecard requests information on how financial institutions offering school-sponsored accounts would ensure that students receive objective and neutral information on their choices. For example, the scorecard asks financial institutions to provide an explanation as to how they will ensure that a college has the ability to approve certain marketing materials using its brand or logo.
- How much the financial institution earns from the accounts:The draft scorecard provides a way for colleges to seek specific information about the cost of Safe Student Checking and Safe Student Prepaid Accounts. For example, colleges might require that institutions would have to say how much they receive for each account opened, how much financial support they provide to the school, and how much the institution receives for each transaction with its financial product.
- Annual summary of fees: The draft scorecard would have financial institutions provide the school with an annual summary describing the fees charged to account holders at the given college. The summary would include: number of student account holders the previous year; average and median fees paid by a student account holder per year; the three most frequently incurred fees per year; and the average and median fees paid by a student for each fee imposed.
The scorecard will level the playing field for financial institutions that offer safe and affordable products, regardless of marketing budgets. Schools could adapt the scorecard to meet their unique needs. The scorecard is designed to solicit information helpful to a school’s selection process and not to establish minimum standards.
The Bureau will be accepting input on the draft scorecard until March 30, 2015.
The CFPB published a consumer advisory warning students that they do not need to choose the financial product endorsed by their school, in light of a major enforcement action involving a large provider of campus financial products. In 2013, the CFPB launched an inquiry on the campus banking market, hosted a public hearing, and called on financial institutions to voluntarily disclose their agreements with colleges to market products not covered by the recent reforms to the student loan and credit card markets.
Students can learn more about their campus banking options using the CFPB’s Paying for College tool.
To learn more about the CFPB’s work on student financial products, visit consumerfinance.gov/students.