Feds eye campus bank card deals

The U Card is as ubiquitous at the University of Minnesota as the buck-tooth Golden Gopher himself. More than 40,000 University of Minnesota students carry the photo ID, a key to dorms, computer labs, libraries and laundry rooms.

It's all ka-ching for Wayzata-based TCF Financial Corp., whose TCF Bank supports and sponsors the card, which carries a menu of optional add-ons such as a link to a free TCF checking account that turns the student ID into an ATM card.

But now, such campus financial products have attracted the attention of the Consumer Financial Protection Bureau. Amid growing scrutiny of the complex, lucrative arrangements between schools and financial service companies, the new federal consumer watchdog group said Thursday that it's launching an inquiry into all the financial products being marketed to college students around the country.

Rohit Chopra, the agency's student loan ombudsman, said it's an area that warrants study.

"We're finding that students may not always be shopping for the best deal and they're inherently trusting the school-endorsed product," Chopra said. "Little is known about arrangements between schools and financial institutions and those marketing agreements."

New federal regulations enacted during the financial crisis have tightened up on some of the marketing to students. The Credit Card Accountability Responsibility & Disclosure Act of 2009 restricts how companies can market products to students. For instance, they had to stop enticing students with freebies, Chopra said, such as free footballs, sweatshirts and pizza.

The U.S. Public Interest Research Group has taken aim at the relationships, issuing a critical report last May called "The Campus Debit Card Trap" that concluded that many campus debit cards, including cards used to disburse federal financial aid, are loaded with unfair fees. There are nearly 900 card partnerships in the United States between colleges and banks or other financial companies, it said.

(The U Card does not handle any financial aid processing.)

TCF spokesman Jason Korstange said he welcomes the Consumer Finance Protection Bureau inquiry.

"We look forward to having a dialogue with them," he said. "They have the right to look into all financing services and they're choosing to do that. We will give them our full cooperation."

Richard Pfutzenreuter, the university's CFO and treasurer, seconded that.

"We think our card relationship with TCF Bank on the U Card is one of the best relationships in the country," he said. "If there are lessons to be learned in that process, that will be great."

As of last summer, Higher One had contracts with more than a dozen schools in Minnesota that have outsourced their financial aid disbursement to the company. The University of Minnesota is not one of them.

Campus credit cards are another target of the Consumer Financial Protection Bureau probe. In November, it launched database for the public to track college credit card agreements with schools.

The agency is seeking input from all parties on the topic of campus financial services through March 13. It will release its findings shortly after that, Chopra said.

At least 10 Minnesota schools are in the credit card database, including the College of St. Scholastica in Duluth, Hamline University in St. Paul and the St. Cloud State University Alumni Association. The majority of the Minnesota schools have credit card deals with FIA Card Services Inc., a leading credit card issuer based in Wilmington, Del., that is a unit of Bank of America Corp.

Minneapolis-based U.S. Bancorp has a credit card deal with the Bemidji State University Alumni Association in Bemidji.

But it has a long and close relationship with the University of Minnesota that includes paying $35 million for naming rights to TCF Bank Stadium. As for the U Card arrangement, the U gets a royalty payment based upon the number of active TCF Bank checking accounts, which totaled about 36,331 accounts in May, according to the U. The university collects about $1 million a year in royalty payments. The university said it spends the money on student programs and scholarships.

The U Card is not connected to any financial aid distribution, nor are the related TCF bank accounts, the university said.