Seventeen colleges were sent warning letters from the Consumer Financial Protection Bureau (CFPB) last week after an annual report showed they were not properly disclosing agreements related to school-sponsored credit cards.
The report, issued annually by CFPB, looks at trends in the marketing partnerships between higher education and financial institutions and addresses concerns related to the transparency of college-sponsored financial accounts. According to CFPB, more than 10 million students attend an institution that has a deal with a financial institution to allow or promote debit or prepaid cards, which are often endorsed with the school’s logo or link to a student identification card. The agreements also often provide postsecondary institutions a share of the revenue generated from the cards.
The Department of Education (ED) and banking regulators have in the past expressed concern over the marketing tactics and consumer risk associated with these financial products. In October, ED released new cash management regulations that included new requirements for institutions that partner with vendors to distribute student aid and sponsor or market products to student aid recipients.
The CFPB report showed an overall decline in the number of college credit card agreements, which has been steady since the passage of the CARD Act in 2009. The overall number of agreements has dropped by nearly 70 percent since 2009, with only 272 agreements in effect by the end of 2014. College revenues from the agreements also dropped to about $34 million in 2014 compared with over $84 million in 2009.
CFPB also took a sample of 25 of the largest colleges with active partnership agreements to offer credit cards to students. In its review, CFPB found that 20 colleges did not disclose online their marketing contracts related to the credit cards, and only seven of those 20 schools published information on how to obtain the agreements. Only two of these colleges actually provided the agreements when requested. In addition, only three schools that did not post the agreements on their website provided them upon request as required by law. Further, CFPB found that most schools that posted specific instructions for requesting agreements did not ultimately provide them even when borrowers complied with the instructions.
The schools that did not provide access to the agreements were sent letters last week by CFPB directing them to improve their disclosure practices.
According to a press release, CFPB intends to continue highlighting the need for students and the public to be able to review marketing agreements and any financial compensation schools are receiving from them. To that end, CFPB last week also published a Safe Student Account Toolkit “to help colleges evaluate whether to co-sponsor a prepaid or checking account with a financial institution,” according to the Bureau.
Publication Date: 12/23/2015