As part of its responsibilities, the Consumer Financial Protection Bureau is now tackling college-endorsed banking products with the goal of ensuring college students are being treated fairly and “are getting a good deal.” The goal is to put together a comprehensive study that will address marketing efforts and whether college marketing deals involving credit cards and other banking products are in the students’ best interests. It’s expected to be one of the most in depth efforts of the government consumer watchdog group.
Colleges and Financial Institutions
CFPB Director Rich Cordray, who is also the former Ohio attorney general, said that there are many colleges that are partnering with different financial institutions in an effort to offer different financial and banking products to college students. Already, it’s been determined that several colleges have intricate contracts with many financial institutions; in fact, there are 798 higher learning campuses that have sororities, alumni organizations and fraternities that all have entered into different deals. The interesting fact: all have contracts with credit card companies. Remember, it’s now illegal for credit card companies to market or do business with college students unless they can show definitive abilities to repay their debts.
The official request reads, in part, that the goal is “structured to promote positive financial decision-making among young consumers. (The Bureau also) seek information to develop a clearer picture of the financial products and services that are being offered to college students”. It also seeks to better understand consumers’ experiences using those products and services. The goal, says Cordray, is to provide an opportunity for comments, suggestions, complaints and other communication to be made by college students and their families.
Remember, the Credit CARD Act of 2009 restricted financial institutions from using specific types of marketing practices on college campuses. The CARD Act also made agreements between credit card issuers and institutions of higher education subject to public disclosure. The problem is that there are no requirements for banks or colleges to make public their arrangements about other financial products and how they market to students. Enter CFPB. To better understand the market, the CFPB published this week a is publishing today a Notice and Request for Information on the topic of campus financial products. Campus financial products include student identification cards that double as debit cards, cards used to access scholarships and student loans, and school-affiliated bank accounts.
One interesting specific that’s not included in this new request is there is no mention of how students are providing the proof needed to show the ability to repay debts, which is the biggest part of the new laws. Previously, credit card companies were loose in their approval processes for these young people. Understanding the vast majority had yet to make the move to establish their credit histories, the card companies often used that as justification of opening a new account. It gave the card companies the opportunity of reining in life long customers while providing college students the chance to jump start those credit histories, despite not having a way to repay the debt. Unlike student loan debt, many of these students learned that their payments were due every month, even if they had no jobs to cover the payments. Most of the time, parents stepped in to cover these unexpected expenses.
University of Cincinnati
One college in particular, the University of Cincinnati, was found to have 375 open accounts by students. Those accounts easily surpassed $300,000 in credit card charges during the year. Not only that, but these numbers are growing. Using UC as our example, there were 114 new accounts opened last year, a 20% increase from the year before. The primary credit card entity it’s partnered with is Bank of America.
As part of its efforts, the CFPB is requesting that families and students, along with banks and colleges, provide information on the various financial products. Specifically, it’s asking for information on student ID cards that double as debit cards. It also wants to know about credit cards that are used as scholarship sources and credit cards or debit cards that have student loan disbursements on them. It wants to know if these products are in the best interest of students and their families. From financial institutions and colleges, CFPB is seeking to discern what information schools share with financial institutions when they establish these relationships, how the campus financial products are marketed to students, the fee structures students are agreeing to in order to use those products and how these products affect a student’s experiences in their daily lives.
Along with this study and request for information, CFPB simultaneously announced a new guide for college students that provides insight into how to choose new credit cards or checking accounts. Many recall the heavy marketing efforts used to rein in college students prior to the new laws. This new guide addresses those changes as well as provides warnings on what to avoid and the potential pitfalls. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Consumer Financial Protection Bureau is charged with “collecting, researching, monitoring and publishing information” about consumer financial products and services.
How You Can Help
CFPB is also reminding consumers, especially college students and their families, that a database of college credit card agreements can be be found on the CFPB website at data.consumerfinance.gov/Government/College-Credit-Card-Agreements. Also, last year’s annual report on those credit card agreements can be found at files.consumerfinance.gov/f/201210_cfpb_report_College_Credit_Card_Agreements.pdf. Meanwhile, all of the submissions collected, along with any supporting materials that are volunteered, will become public record. Cordray assures those willing to participate that any sensitve information, such as account numbers and social security numbers should not be submitted; however, if it does receive this kind of information, there are no guarantees that it will be able to eradicate it prior to it going public. The request for information is good until March 18, 2013. Submissions can be forwarded to CFPB_StudentsFedReg@cfpb.gov.
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One Response to 'CFPB Conducting New Research Into College Credit Card Use'
by Dona Collins on February 13, 2013
I’m glad there’s a watchdog group looking into this. It seems like the card act of 1999 put a huge damper on the way colleges and credit card companies did business – which is to say I wonder if colleges were partnered with the credit card companies who were recruiting on their campuses. It seems like the invention of so many other products is an attempt to find a loophole – giving students cards with perks and features that they could have gotten if they had applied traditionally – without all the work? I’m going to have to do some more research on this one.