Colleges and banks flaunted new rules meant to protect students from paying excessive bank account fees for prepaid cards loaded with financial aid, and schools that accepted payments from banks were the biggest culprit, according to government research made public today after I filed a Freedom of Information Act. The research found that students with so-called college-sponsored prepaid and debit cards overpaid millions of dollars in fees to banks, but mainly at schools that accepted marketing payments from those banks. The analysis expresses concerns about a “conflict of interest” created by schools that accept bank payments.
The research was conducted by the now-defunct Office for Students and Young Consumers at the Consumer Financial Protection Bureau, and shared with the Department of Education back in February, but it was not published until now. In total, students paid $27.6 million in fees during the 2016-2017 academic year, the analysis found. Fees on the college-sponsored prepaid and debit accounts are of interest to taxpayers because they often represent taxpayer-funded student aid funds being shuffled to banks, rather than available to students so they can buy books or pay other school-related costs.
I asked about the research after former head of the student advocacy office, Seth Frotman, resigned in August. His scathing resignation letter included an assertion that then-acting CFPB head Nick Mulvaney had “suppressed publication of a report showing lenders were ripping off borrowers with legally dubious account fees.”
At the time, I asked for all communication about the alleged report via a Freedom of Information Act request. My inquiry is ongoing, but late today the CFPB’s FOIA office shared with me an “unpublished analysis” about college account fees that was prepared for the Department of Education in February. The analysis document provided to me appears to be related to the suppressed report Frotman mentioned in his letter, but I cannot confirm that.
The CFPB said in an email that “the Bureau has no comment on this.”
“It’s outrageous that the CFPB suppressed a study showing schools were pushing students into higher fee accounts,” said Lauren Saunders, who studies this issue to the National Consumer Law Center. The bureau’s mission is “to shine a spotlight on practices that take advantage of consumers,” she added.
For years, colleges engaged in sometimes unseemly marketing relationships with banks, at times loading financial aid payments onto fee-laden prepaid cards. In 2015, the Department of Education passed new rules — called “Cash Management” regulations — that required schools to ensure banks didn’t charge students outsized fees that were “inconsistent with the best financial interests of the students opening them.” Schools were required to make sure card fees were consistent with or below prevailing market rates, for example.
Hundreds of schools satisfied that requirement; at least half of students during the 2016-2017 school year paid no fees at all, the report found. But many other schools did not, according to the analysis. Those that allowed banks to charge above-market fees tended to have lucrative marketing deals with the banks, the analysis found.
The Cash Management rules also required schools to make fee data and marketing arrangements public. The unpublished CFPB analysis is a compilation of this public data, sent to the Department of Education as it was working on a “Next Gen Payment Card Program Pilot,” according to a cover letter that accompanied the analysis.
“Colleges paid by account providers to promote accounts typically charge overdraft fees. Student account holders at colleges paid to promote accounts paid three times more in account fees under these agreements, on average,” the analysis found. “Nearly one-in-ten consumers in the population with student accounts incurred 10 or more overdrafts per year, paying, on average, $196 in overdraft fees alone.”
The analysis found that 116 colleges received bank payments totaling $16.6 million – an average of $35 per account. And the 482,000 students who used accounts at those schools paid an average of $35 in fees.
As one example, the analysis said Wells Fargo paid schools $2.1 million; meanwhile, the bank collected an average of $46.99 from students at the schools. Wells Fargo did not immediately respond to a request for comment.
“The Bureau and other government entities have expressed concern over the relationship between revenue sharing provisions in contracts and fees charged to student accountholders,’ the analysis said. “(There are) questions about potential conflicts of interest, including whether revenue sharing encourages higher-fee financial products that crowd out competition from providers of accounts for which student accountholders would avoid high fees and/or accounts where all student accountholders overall would pay less in fees.”
Previous leadership at the Consumer Financial Protection Bureau had expressed concern about any connection between marketing fees and student bank account fees.
“Deals between big banks and schools can drive students into accounts that contain high fees,” said Director Richard Cordray in 2016, when an earlier report on the issue was released. “Today’s report shows that many schools are more focused on their bottom line than their students’ well-being when they agree to sponsor financial accounts. Many young people struggle to manage money while at school and we urge schools to put students’ financial interest first.”