WASHINGTON, Dec 17 (Reuters) - The U.S. Consumer Financial Protection Bureau on Tuesday called for banks to disclose their agreements with universities to market debit cards and other prepaid financial services to students.
“Students and their families should know if their school, whether well-intentioned or not, is being compensated to encourage students to use a specific account or card product,” said CFPB Director Richard Cordray. “When financial institutions secretly give kickbacks to schools, they are engaging in risky practices.”
Through these deals, schools work with banks and other financial firms to disburse school loans, scholarship or grant money directly to students. Students often get debit or credit cards that double as school identity cards.
The CFPB has found questionable practices arising from those relationships, including university personnel receiving money and gifts from lenders or owning stock in companies offering services to students. Other schools accepted large amounts of money or earned commissions per student who signs up.
The CFPB found that some students also were subjected to aggressive marketing, and to extra fees such as overdraft charges.
A 2009 law requires financial institutions to disclose information about agreements with schools to provide credit cards to students. They do not have to disclose information on debit and other prepaid cards marketed on campus.
In its annual report to Congress on credit card agreements between banking institutions and colleges, the CFPB said such credit card agreements have fallen by 41 percent since 2009.
The amount of money given to schools by banks also fell from about $84 million to $50 million in 2012, a 40 percent drop.
But even though the credit card agreements have declined, two in five students now carry a debit card issued through their campus, according to U.S. Public Interest Research Groups, a collection of non-profit advocacy groups.
“As a result of strong public disclosure and consumer protection rules, consumers are being made aware of the tricks and traps that were layered into credit cards marketed on campus,” said Ethan Senack, U.S. PIRG’s higher education associate.
“But at the same time, financial institutions are using the lack of disclosure requirements around debit and checking cards to keep students in the dark,” he said.
Several lawmakers in September sounded the alarm about such agreements, saying they could expose students to exploitation through “fee-laden” debit cards that raise the cost of their education and push them further into debt.
The Consumer Financial Protection Bureau has taken a wide interest in the burden of student debt, which it says now totals $1.2 trillion.
Its latest announcement is part of several moves to curb runaway student debt and protect consumers and students from exploitation by financial institutions.