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From Banking and Finance Law Daily, December 13, 2018

CFPB internal report shows college students often charged high banking fees

By Colleen M. Svelnis, J.D.

In response to a Freedom of Information Act request, the Department of Education has released a previously suppressed February 2018 report prepared by the Consumer Financial Protection Bureau’s Office for Students and Young Consumers about student use of college-sponsored deposit and prepaid accounts. The report reveals that some large banks charged excessive account fees to students.

The CFPB examined 573 colleges and universities over the 2016-2017 academic year and determined that collectively, students using accounts at colleges identified in this study paid $27.6 million in fees to banks. Over the study period, 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.

According to the report, most students are able to use a college-sponsored account free of any fees. However, several large banks charged students fees, including Wells Fargo, which charged an average of $46.99 in account fees over 12 months. That represented the highest average fees, and was nearly twice the fees charged by other banks.

The report describes how account providers may pay colleges based on the number of students who open and use their account, including a fixed amount for each student or annual payments based on the total number of students using an account.

According to the report, colleges paid by account providers to promote accounts typically charge overdraft fees. The Bureau identified 116 colleges that report being paid by their account provider to promote financial accounts during the reporting period.

  1. Where a college reports a low median fee and a higher average fee, the difference is likely driven by situational or penalty fees paid by some of the accountholders.
  2. Where a college reports both a low median fee and a low average fee, these fees are likely driven by regular or reoccurring charges distributed evenly across all accountholders, such as monthly maintenance fees.
  3. Where average account fees are significantly larger than median fees could result from accounts charging overdraft or other penalty fees.

Strong reaction. Rep. Maxine Waters (D-Calif), Ranking Member of the Committee on Financial Services, called it "deeply troubling" that the report was only revealed in response to a FOIA disclosure. Waters asked why it wasn’t publicly issued earlier, what is being done "to ensure harmed students are being made whole, and what is being done to prevent excessive fees from being charged of more students?"

In 2016, the CFPB released a report analyzing marketing deals for school-sponsored accounts and concluded that colleges continue to maintain deals with large banks to market products with costly features that are not in the best financial interests of their students (see Banking and Finance Law Daily, Dec. 14, 2016). And in October, Waters called for an investigation into the CFPB for allegedly failing to protect student loan borrowers, when it was alleged that CFPB leadership suppressed the release this report (see Banking and Finance Law Daily, Oct. 2, 2018).

Industry groups respond. Consumer Bankers Association President and CEO Richard Hunt responded to the report with a statement noting that banks "value the relationship they have with their customers and provide important, necessary services to students as they work to achieve their goals." Hunt stated that the more services, including wire transfers and overdraft protections, are used "by a customer of any age will result in increased annual costs. Each product and service carries a nominal fee–as the report notes–and is optional."

U.S. PIRG also commented on the report, noting that the report reveals that students are paying millions of dollars in dubious fees on debit cards. "Assuming some students pay little to no fees, then that means that a subset of already cash-strapped students are being charged hundreds of dollars in dubious fees," said Kaitlyn Vitez, higher ed campaign director for U.S. PIRG. "It’s shameful that we had to wait a year after this report was written for it to see the light of day," said Vitez. "The CFPB and ED sat on this report for nearly a year, and watched as another first year class of students signed up for these dangerously expensive accounts. Students deserve better. We need to be enforcing the rules that are already on the books before we dive head first into a national debit card system."

Companies: Consumer Bankers Association; U.S. PIRG; Wells Fargo

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