College-sponsored financial products often have higher fees and more restrictive terms and conditions compared to typical market products, according to a Consumer Financial Protection Bureau report.
The Dec. 19 annual student banking report identified college-sponsored deposit accounts with fees higher than prevailing market rates which colleges are required to consider under Department of Education rules designed to protect students’ interests. The report concentrated on dual-purpose college IDs and college-sponsored credit cards.
According to the CFPB, financial institutions sometimes charged students “high or atypical fees,” including on overdrafts and NSFs, steering students into accounts that cost far more than they would pay in the open market. The review included 143 partnerships between colleges or affiliated groups — such as alumni associations— and credit card issuers representing more than 530,000 open accounts as of the end of 2022.
Financial institutions reportedly pay eight-figure sums to colleges and universities under the arrangements, “including flat-fee marketing deals and per-signup kickbacks,” according to the CFPB. Financial institutions reportedly generated more than $17.3 million in revenue from more than 650,000 student bank accounts during the 2021-22 award year.
According to the CFPB, BankMobile had the most total active student accounts in the 2021-22 award year at 452,077, followed by Huntington Bank with 48,249; PNC Bank with 45,548; MidFirst Bank with 45,115; and Wells Fargo with 34,271.
Students are reportedly more likely to accept their school’s recommendation of a credit card or bank account when they arrive on campus, which reduces the pressure on colleges and banking partners to lower fees. “Many colleges continue to offer and market financial products in ways, including through online and email advertisements, that may mislead students under certain circumstances,” according to the CFPB.
According to the report, students also allegedly faced unexpected fees at graduation based on “sunset” clauses in the products’ terms and conditions. “Students who sign up for a product marketed as free may thus end up being charged monthly maintenance fees, or overdraft and NSF fees they did not anticipate,” according to the CFPB. “The CFPB will continue to examine these practices and identify possible violations of federal consumer financial protection law.”