Consumers Union, the advocacy division of Consumer Reports, appreciates the opportunity to comment on the Department’s proposed rule to set new minimum standards for campus banking arrangements pursuant to its “cash management” rules.
We strongly support the Department’s proposal, and believe it will rein in some of the most problematic features of these school-bank partnerships. We are pleased that the proposed rule:
- Sets minimum requirements for accounts opened during the financial aid disbursement selection process, as well as those directly marketed to students;
- Requires a neutral menu of options for students choosing how to receive their financial aid disbursement, with direct deposit to an existing account displayed prominently as the first option;
- Requires affirmative consent from a student or parent to open a campus account before mailing an access device associated with the account, or linking an student’s ID card to the account;
- Requires meaningful access to free ATMs for all campus accounts;
- Bans point-of-sale and overdraft fees, and any other fees for the first 30 days after account opening, on at least some campus accounts; and
- Requires public disclosure of campus banking contracts, including prominent posting on school websites as well as submission to a centralized database.
We also believe the rule could be further strengthened in a few key areas. The final rule should:
- Set the same, strong standards for all campus banking agreements between schools and financial firms. The proposed rule would distinguish between accounts opened as part of the Title IV disbursement process (“Tier 1” accounts) and those marketed directly to students (“Tier 2” accounts). Given that the vast majority of students nationwide must use Title IV funds to pay for college – and will have credit balances – it is important that the Department protect those funds, regardless of the manner in which a student is offered a campus account pursuant to an agreement between a school and a financial firm.
- Ban co-branded ID cards prior to account opening. While we appreciate that the proposed rule would prohibit linking such cards to a campus account without prior consent, we have concerns that receiving a co-branded student ID card with an embedded payment card function still implicitly markets the campus account as the preferred option for students.
- Ban point-of-sale and overdraft fees on all types of campus banking products, not just Tier 1 accounts. These fees are especially troubling, and inappropriate for student accounts.
- Ban revenue-sharing agreements. These kinds of agreements are banned on private education loans. Though we appreciate the proposed rule’s provisions around the disclosure of such agreements, we believe the simpler solution is to eliminate them altogether.
- Clarify that schools must base their decision to enter into a campus banking contract on whether that contract is in their students’ best interests. Schools should place priority weight on account terms when evaluating bids for campus banking contracts, to ensure that they are good for students.
In any case, if Tier 2 accounts are given fewer restrictions than Tier 1 accounts, and revenue sharing is still permitted, it is all the more crucial that the Department ensure clear public contract disclosures, as well as central databasing of all campus banking contracts. Better transparency around these agreements will promote healthy competition and encourage contract terms that give students a better deal.
To read the full comment letter, click on the link below.