Previously Unreleased CFPB Report Raises Concerns Over Payment Vehicle Pilot

By Allie Bidwell, NASFAA Senior Reporter

A previously unpublished report from the Consumer Financial Protection Bureau (CFPB) on college-sponsored deposit and prepaid accounts—released Friday as the result of a Freedom of Information Act (FOIA) request—shows some agreements between colleges and third party providers still charge fees CFPB said could be a risk to students.

CFPB wrote the report, dated February 2018, in response to a request from A. Wayne Johnson, who currently serves as the Department of Education’s (ED) chief strategy and transformation officer and previously worked as the chief operating officer at Federal Student Aid (FSA). Johnson has been tasked with developing and implementing ED’s Next Generation Financial Services Environment, which includes a pilot program for a payment vehicle that would function like a prepaid card for financial aid recipients.

The report was not shared with the public until Citizens for Responsibility and Ethics in Washington (CREW) made a FOIA request for the report in September. The organization did so after Seth Frotman, former student loan ombudsman at CFPB, abruptly resigned, and in his resignation letter acknowledged the existence of the report, saying that “when new evidence came to light showing that the nation’s largest banks were ripping off students on campuses across the country by saddling them with legally dubious account fees, Bureau leadership suppressed the publication of a report prepared by Bureau staff.”

“Releasing the report itself, and communications about its publication would contribute to a greater understanding of whether the CFPB is actually working to protect consumers, in accordance with its mission,” CREW said in September. “As CFPB Director Mick Mulvaney has formerly called for the agency to shut down, there is reason to believe that leadership of the CFPB may be working to undermine the mission that they are charged with fulfilling.”

Some have raised concerns about whether ED’s planned pilot program would protect students’ personal information, and whether they would be charged fees as a result of using the payment vehicle. Cash management rules finalized in 2015 require “most colleges to ensure that marketing agreements are ‘not inconsistent with the best financial interests’ of students,” the report said.

Still, CFPB found that in 2016-17, the only year for which data is currently available, the average account fees paid by students to account providers ranged from $0 to $46.99, and the more than 1.3 million students with active accounts that year paid $27,600,000 in account fees.

The report found that at least half of students using an account at most colleges were not charged any account fees, but that a subset of students paid “a disproportionate share of the total fees paid by accountholders at a given college.” CFPB said the patterns were “similar to those found in the broader checking account and overdraft markets.”

Students were more likely to pay fees at colleges that were paid by account providers to promote the accounts. CFPB identified 116 colleges—of 573 examined for the report—that were being paid by the account provider, collectively receiving more than $16.6 million in 2016-17, which averaged to about $35 per account. Students at those institutions paid three times more in account fees, on average, the report found. By comparison, at the 457 institutions that were not paid by account providers, students paid average of $11.93 in account fees during that same time.

ED is in the process of soliciting one or more companies to manage the pilot program by entering into “cooperative agreements” with ED, in which they will not receive any payment for running the pilot program. ED has also said that companies will not be allowed to charge schools for the service.

 

Publication Date: 12/10/2018


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