Federal scrutiny of college student debit cards heats up

Federal officials and lawmakers are digging into the hawking of debit and prepaid cards to students on U.S. campuses, including cards used to disperse hundreds of millions of dollars in student aid each year.

The Consumer Financial Protection Bureau said Monday that it has found that some of the "affinity" student checking products affiliated with a college or university are less attractive than other options.

"Affinity products do not always have more competitive features, compared to other student checking products," CFPB assistant director Rohit Chopra said at a forum in Washington.

The bureau released some of its early findings at the forum as part of an ongoing investigation into the campus card programs. The forum largely focused on the 162 responses the watchdog received to an information request it issued last winter.

The aggressively marketed plastic cards the bureau is examining are frequently co-branded with school logos and double as all-purpose student ID cards.

While the cards can be a significant convenience, they are raising concerns that schools and vendors may be taking advantage of strapped students, steering them into financial products that could nickel and dime them.

Schools across Minnesota have a range of agreements with campus card providers. The most frequently cited is the University of Minnesota's pact with Wayzata-based TCF Financial Corp., which pays the school about $1 million a year based on the number of TCF checking accounts opened.

According to a copy of the letter dated Sept. 26, the lawmakers asked each bank for the number of accounts they have at each school and total fees from such accounts over the last three years, the sum the banks paid the schools to market the products, and whether the institution has ever provided gifts of any sort to school employees as part of its marketing strategy.

While the Credit Card Act of 2009 cracked down on how banks market credit cards to students — it banned freebies such as getting free sweatshirts for opening a credit card, for instance — those restrictions didn't apply to debit cards linked to checking accounts, prepaid cards and other financial products. The marketing partnerships between schools and banks have shifted toward those products, the CFPB said.

The number of credit card agreements schools have with banks and other financial companies has fallen to 798 in 2011, down from 1,045 in 2009. But about 900 schools have agreements with a bank or third-party provider for student checking, debit cards and prepaid card products, according to the CFPB.

About 30 percent of the bank contracts include revenue sharing with the school, which included commissions paid to the school per student account that's opened, according to a survey by the National Association of College and University Business Officers.

But financial institutions make money on the card deals in a variety of ways, the CFPB noted. Not only do they gain early access to young customers and collect interchange and account fees such as overdraft fees and ATM fees, but they also can cross-sell other banking services to school officials.

Several students spoke out in Monday's forum. Dianna Fielding, who said she recently graduated from Hamline University in St. Paul, sent a video statement saying she opposes the school's relationship with Minneapolis-based U.S. Bancorp. "Students are highly encouraged to sign up for the option to link their ID card with the US Bank checking and debit account during orientation for new students," Fielding said in the video. "In fact, students receiving new ID cards will find the card is already linked to U.S. Bank."

Fielding said that the only ATMs available on campus are U.S. Bank ATMs.

"It seems ridiculous to me that a nonprofit institution like Hamline University would be so closely and exclusively associated with a for-profit bank without providing other options," she said. "It limits the choices and freedom student have when it comes to their financial independence."

A bank spokeswoman said it looks forward to responding to any questions congressional leaders or regulators have about its campus programs.

"We are very proud of the choices we offer students in their banking relationship with U.S. Bank," said Teri Charest. "Our student checking account has been recognized nationally by Money Magazine as one of the best in the nation for value and convenience."

"The opt-in process is upfront, transparent and designed to honor and facilitate the consumer's choice," Gunn said.