If you’re doing business with a local college, the Consumer Financial Protection Bureau wants to know about it.
The CFPB recently opened an inquiry into financial products marketed to college students, inviting comment at its recent “Banking on Campus” forum and asking anyone with an opinion or an experience to send them a tweet during the event.
“Students need unbiased fair marketing, and better consumer protections on campus,” the Higher Education Public Interest Research Group tweeted.
Regulators have cracked down on relationships between colleges and credit card peddlers, but of particular interest to the agency right now is a special type of prepaid debit card that is loaded with the student’s financial aid overages. Schools once distributed those overages via paper checks students could pick up at the bursar’s office, but increasingly, colleges and universities have paired with financial institutions to offer students debit cards loaded with the overage from their financial aid.
"Since it had the college logo on it, I trusted that it was in my interest," one student told the CFPB.
This type of partnership saves money for the schools, saves trees by cutting down on paper waste, and saves some time for students, who otherwise might have to stand on line in the bursar’s office for an hour or more. But those special pre-loaded debit cards also often come with fees attached when students try to access those funds via ATM or check.
Higher One, one of the better-known providers of those debit cards, later responded to the CFPB’s concerns on its website, stating that it had eliminated all fees, save a monthly fee of $4.95, from its Edge account and further that it had adopted the Pew format for fee schedules and required all account holders to read and accept their fee schedule before activating an account.
Other Issues
But Rachel Fishman, a policy analyst in the Education Policy Program at the New America Foundation, says the cards raise another issue besides fees.
“It also leaves the student unbanked. Students need access to actual dollars, as opposed to a debit card. There is a convenience factor, but if there are fees attached to it, there’s a losing situation and prevents students from becoming banked,” she said.
The ideal, she said, is for college students to establish a relationship with a bank or credit union in the form of a low-fee or no-fee student account.
“Where a student is establishing credit, learning how to pay credit, things like that are very helpful, but when the terms and conditions exploit students’ low financial literacy. Things that exploit that are really unhelpful. This is the opportunity that financial institutions have to develop a good relationship with students and to also make sure they’re good account holders, that they learn how credit works and don’t become bad consumers of these financial products. It’s in their interest to provide good products that help teach students.
But as plenty of banks and credit unions have already demonstrated, that relationship doesn’t have to be predatory in nature.
For example, UMass Five College Federal Credit Union in Hadley has recently begun offering a bike loan to college students who want to purchase a bicycle for transportation. UMass Five doesn’t make much money off the bike loan, the credit union has previously told Banker & Tradesman, but the borrower also isn’t going to get into any trouble with a $300 bike loan and more importantly, the student learns about and establishes credit this way.
UMass Five has also said that about 45 percent of its new membership base falls into the 18 to 30 year old age range.
And Leominster Credit Union has launched an initiative called Finding Easy Street, a daylong financial literacy conference free to all college students in the Greater Worcester Area.
Where a student is establishing credit, learning how to pay credit, things like that are very helpful, but when the terms and conditions exploit students’ low financial literacy, things like that are really unhelpful,” Fishman said.
And while millennials are perhaps best known right now for their general lack of funds (as well as staggering student loan debt), college students can still present a desirable market for banks and credit unions.
“[College students] might not have a bank account, they might not have a credit card. This is an opportunity for them to develop a relationship with a financial institution. Financial institutions want to establish that relationship and get that customer,” Fishman said.
Email: lalix@thewarrengroup.com
