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From Banking and Finance Law Daily, December 16, 2014

CFPB: college credit cards down as debit, prepaid cards rise

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau is reporting that college credit card agreements have continued to decline. The bureau found that such agreements have declined by 70 percent since Congress passed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act in 2009, with a shift in marketing partnerships from credit cards toward other products such as debit and prepaid cards.

“Today, financial institutions are cutting more deals with colleges and universities to market student banking products that require less disclosure,” said CFPB Director Richard Cordray.“ Schools and financial institutions should be up front on their website with students and their families about whether or not the school is being compensated to encourage students to use a specific account or card product.”

Background of annual report. The CFPB’s annual report to Congress on college credit card agreements, its fifth, is required under the CARD Act. While the Federal Reserve Board issued the first two reports, the Dodd-Frank Act shifted responsibility for collecting data and submitting findings to Congress to the CFPB in 2011. The CARD Act requires issuers to disclose to the CFPB, and the bureau report to Congress on, the terms and conditions of any credit card agreement with institutions of higher education or certain organizations affiliated with these institutions, the number of new credit card accounts, and the compensation paid by issuers to institutions of higher education in the previous year. Congress further required that colleges and universities publicly disclose these agreements in order for students and the public to identify marketing agreements currently in effect.

Key findings. The CFPB reports that its research has determined that:

  • in 2009, there were about 1,045 agreements between credit card issuers and higher education institutions. That number had dropped to 336 agreements by the end of 2013;

  • the Government Accountability Office found that there were at least 852 schools that had agreements with companies to market debit or prepaid cards to students in 2013, products that do not have specific requirements in federal consumer financial laws to disclose their marketing partnerships; and

  • 80 percent of colleges surveyed by the CFPB do not put their agreements, or information about how to request them, on their websites. According to a bureau blog post, the CFPB is calling on financial institutions to publicly disclose their agreements to provide transparency to the market.

Banking on college campuses. The bureau reports that it also is monitoring the marketing arrangements many colleges and universities have with financial institutions related to deposit accounts, prepaid cards, debit cards, and other financial products. According to the CFPB, investigations by the GAO, Department of Education’s Inspector General, and others have raised concerns about conflicts of interest in these arrangements, as well as their impact on students.

Enforcimg campus credit card rules. In light of the bureau’s report, U.S. PIRG is urging the CFPB to step up enforcement of campus credit card rules. Stating that college students are “still under siege from banks on campus,” the consumer group noted, “From over-the-top marketing tactics, to revenue-sharing agreements with colleges, to fees that are hard to avoid, banks make it tough for students in the campus marketplace.”

U.S. PIRG Higher Education Program Director Christine Lindstrom said, “Worse, financial institutions avoid the strict rules for marketing credit cards on campus laid out in the law and have moved toward offering campus checking accounts and prepaid cards to students that carry little consumer protections.”

CBA statement on report. Consumer Bankers Association President and CEO Richard Hunt said that the CBA agrees that students need “clear information to make intelligent choices” on financial services and products. However, Hunt said, banks and colleges often work together to provide financial services to students, and it should be noted that students are not required to use any financial product or service. Further, the CBA is not convinced that posting proprietary contracts would benefit consumers or that there is evidence that consumers are being harmed by bank-school agreements.

Companies: Consumer Bankers Association; U.S. PIRG

MainStory: TopStory CFPB ConsumerCredit CreditDebitGiftCards DoddFrankAct

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