College-Sponsored Financial Products Often Carry High Fees, CFPB Report Reveals

Consumer Financial Protection Bureau Requests Information on the Impact of the CARD Act Regulations on Small Entities and the Consumer Credit Card Market

A recent report by the Consumer Financial Protection Bureau (CFPB) has unveiled concerning details about college-sponsored financial products. The study found that many of these products, often recommended to students and alumni, carry higher fees and have worse terms and conditions compared to typical market offerings.

The CFPB’s report is part of its annual obligation to Congress under the CARD Act. It highlights college-sponsored deposit accounts with fees above prevailing market rates, a practice that contradicts Department of Education rules designed to protect students’ interests.

“Many students get their first credit card or deposit account when they enroll in college, and banks know that consumers are unlikely to switch to a different provider once a product is integrated into their financial life,” said CFPB Director Rohit Chopra. “Schools should take a hard look at the fees and terms of the products they pitch to their students and alumni.”

Colleges often offer sponsored and co-branded financial products, such as deposit accounts, credit cards, and prepaid cards. These partnerships between colleges and financial institutions can be profitable, with institutions paying colleges tens of millions of dollars annually through flat-fee marketing deals and per-signup kickbacks.

However, the CFPB’s College Banking and Credit Card Agreements report for 2022 revealed that these arrangements might not be in the best interest of the students. The high fees charged on student banking products endorsed by colleges suggest that financial institutions and colleges may be steering students towards costly financial products.

The report also found that many colleges continue to use marketing strategies that could mislead students into accepting products that may not suit their needs. Some of the risks identified in the report include:

  • High or atypical fees: Despite most large banks discontinuing overdraft and non-sufficient funds (NSF) fees in recent years, some sponsored deposit accounts in the report still charge these fees. Consequently, students following their school’s advice may end up with accounts costing them significantly more than they would pay in the open market.
  • Fee disparities by institution type: The report found that the average fee burden varies by the type of institution. Accountholders at Historically Black Colleges and Universities (HBCUs), for-profit colleges, and Hispanic-serving institutions (HSIs) all pay higher-than-average fees per account.
  • Unexpected fees at graduation: Some financial institutions impose additional fees when a student graduates or reaches a certain age, relying on “sunset” clauses in the products’ terms and conditions. Students who sign up for a product marketed as free may end up being charged monthly maintenance fees, or overdraft and NSF fees they did not anticipate.
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The CFPB stated that it will continue to examine these practices and identify possible violations of federal consumer financial protection law.

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