New Federal Bills Would Protect Students From High-Cost Campus Bank Accounts

Legislation Would Help Students Avoid High Fees, Limit Aggressive Marketing Tactics, And More

U.S. PIRG

Yesterday, lawmakers from both the U.S. House and U.S. Senate introduced bills that would protect college students from being needlessly steered into campus bank accounts — accounts with debit cards that often drive up students’ costs and deplete their financial aid.

Two in five college students across the country now have a campus debit card linked to their student ID card—and some campus debit cards even come preloaded with financial aid, according to U.S. PIRG’s “Campus Debit Card Trap” report. The students are often pushed into accepting the cards by aggressive marketing tactics including pre-mailing of the debit cards before the student has consented to the account, or steering that occurs when the student is making her financial aid disbursement choice or when she is signing up for a student ID card on campus. Once the student has taken the new account, she is nickeled and dimed out of her financial aid dollars through per-swipe fees, high overdraft charges, and a lack of available no-fee ATMs. Consequently the student must pay ATM fees to obtain federal student aid funds.

The congressional efforts would mandate that a student be able to make her bank account choice in a neutral manner, would ban revenue sharing agreements between colleges and financial institutions and would require that the terms of card contracts be analyzed and publicly reported in a database by the Consumer Financial Protection Bureau, among other protections.

“These bills indicate that lawmakers in both chambers are ready to fight for strong safeguards for students against unfair bank practices,” noted Christine Lindstrom, higher education program director for U.S. PIRG. “If we can’t get the safeguards necessary for students through a new rule at the Department of Education, then we can pursue this strong alternative approach put forth from the Hill.”

The bills come as negotiations between banks, financial firms and representatives of students and consumers, including U.S. PIRG, broke down on Tuesday at the U.S. Department of Education, where the agency seeks to re-write its rules on how financial aid is disbursed to students through campus debit cards.

As part of the negotiation, U.S. PIRG made the case that the new rule should be modeled on the Credit CARD Act of 2009 by creating a neutral marketplace for students and ending push marketing; setting a floor of protections for what the campus bank accounts should look like — including allowing for free ATM withdrawals of student aid, banning overdrafts and certain transaction fees; and using transparency through centrally databasing the arrangements between banks and colleges to track trends in the marketplace and identify new risks in the campus banking marketplace over time. Banks involved in the negotiators fought against this approach. Now that the negotiated rulemaking effort has collapsed, however, the Department can still propose a rule through the traditional notice and comment process, Lindstrom noted.

“Given the powerful push-back we saw from the banks and financial firms at the negotiating table, it is important that we flank the rulemaking effort with the very real possibility that action could come from the Hill if the Department of Education is not able to stand firm,” Lindstrom concluded. “We intend to solve the problems students face that were first identified in our 2012 report, the Campus Debit Card Trap.”

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