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From Banking and Finance Law Daily, May 18, 2015

Education Department adds campus card agreements to its syllabus, proposes rule

By Lisa M. Goolik, J.D.

In response to recent reports describing “troubling practices” arising from college card agreements, the Department of Education is proposing a new rule intended to protect college students from excess fees and provide students the freedom to choose how to access their federal student aid funds. According to the Department’s press release, the proposed rule could impact as many as 9 million college students receiving $25 billion in federal student aid.

“It is critically important to ensure that students can freely choose how to receive their federal student aid refunds,” said Under Secretary of Education Ted Mitchell. “Students need objective, neutral information about their account options. For example, students should be able to choose to receive deposits to their own checking accounts and not be forced to utilize debit cards with obscure and unreasonable fees.”

Providing options. Increasingly, students are receiving their Title IV credit balances—money refunded to them after tuition and fees are paid to the school—through campus debit and prepaid card accounts. Reports from consumer groups and government sources have revealed several issues surrounding the accounts, including a lack of transparency, a lack of meaningful choice, misuse of student information, and unreasonably high fees.

Accordingly, the proposed rule would:

  • prohibit institutions from requiring students or parents to open a certain account into which their credit balances are deposited;

  • require institutions to ensure that students are not charged overdraft fees if students select an account offered directly or indirectly by contractors that assist institutions in making direct payments of federal student aid;

  • require an institution to provide a list of account options that a student may choose from to receive credit balance funds, where each option is presented in a neutral manner and the student's preexisting bank account is listed as the first, most prominent, and default option; and

  • require institutions to ensure electronic payments made to a student's preexisting account are as timely as, and no more onerous to the student than, payments made to accounts marketed through the institution.

Reaction. Consumer advocacy group U.S. PIRG released a statement in full support of the proposed rule. The group’s Higher Education Program Director Christine Lindstrom served on the rule-making panel that led to the draft rule. Lindstrom was proud of the panel’s work, stating, “The U.S. Department of Education stood strong against the banks and financial firms that abuse financial aid recipients on campus through unfair campus banking arrangements. Banks do not use these tactics in the banking marketplace off-campus and there should be zero tolerance for these tactics on campus, given students’ financial vulnerability and overall debt burden.”

Meanwhile, Richard Hunt, President and Chief Executive Officer of the Consumer Bankers Association, criticized the Department’s action, warning that the cost of the new regulatory requirement would ultimately fall to the students, “increasing the cost of college at a time when the government should be trying to do the opposite.” Hunt also expressed disbelief that “Congress ever intended the Department of Education to wield authority over financial services.”

Companies: Consumer Bankers Association; U.S. PIRG

MainStory: TopStory ConsumerCredit CreditDebitGiftCards Loans

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