Report:

The Campus Debit Card Trap

Are Bank Partnerships Fair To Students?
Released by: CALPIRG Education Fund

Banks and other financial firms are taking advantage of a variety of opportunities to form partnerships with colleges and universities to produce campus student ID cards and to offer student aid disbursements on different types of debit or prepaid cards.  In addition to any on-campus services, such as student ID functions, offered on the card, some cards offer traditional debit card services linked to bank accounts; other cards provide additional reloadable prepaid card functions, especially the disbursement of financial aid and university refunds.

While schools are obtaining revenues and reducing costs by outsourcing certain services, the relationships have raised questions because students end up bearing certain costs directly – including per-swipe fees, ATM usage fees, overdraft fees and more. Other issues include potentially aggressive marketing strategies by partnering companies and weaker consumer protections on certain cards that hold student aid funds.

Additionally, students are not necessarily making their financial choices freely. When the college has selected a student ID vendor, for example, that “incidentally” offers additional banking services on the college-mascot-embellished card, the student’s choices are limited and the student is under the presumption that the college endorses the provider. Similarly, when the colleges outsource financial aid disbursement functions, the students generally don’t get to choose whether to accept their refund on a card, a check or an electronic transfer to an existing account until after they have visited the vendor’s website, where it is very clear that the card is the preferred choice of the vendor.

Inquiries into the privatization of government benefits onto prepaid cards in other sectors, such as state unemployment benefits , have suggested that transparency leads to governments making better deals, with fewer fees, for their clients.[1] The intent of this report is to provide an overview of issues surrounding the choices for campus debit cards currently being made on college campuses, which may or may not be transparent to colleges and student consumers. Ideally, this report will achieve a similar result.

This U.S PIRG Education Fund report is an overview of the campus card marketplace and includes a survey of campus cards at the 50 largest public universities, 50 largest community colleges, and 20 largest private universities by campus population. It makes recommendations for best practices by colleges and banks, makes recommendations to policymakers and provides tips for students.

 

Key Findings:

  • U.S. PIRG has identified over 1200 card partnerships between colleges and banks or other financial firms.
  • 32 of the 50 largest public 4-year universities, 26 of the top 50 community colleges, and 6 of the top 20 private not-for-profit schools had debit or prepaid card contracts with a bank or a financial firm.
  • The largest bank player, US Bank, had card agreements at 52 campuses.
  • The largest financial firm player, Higher One, has card-related agreements with 520 campuses.
  • Although contracts are hard to obtain, revenues can be substantial. A new contract between Ohio State University and Huntington Bank includes $25 million in payments to the school over 15 years to be used for academics, student life, athletics, the alumni association and endowment investments.  It also includes an additional $100 million in lending and investment to neighborhoods surrounding campus.
  • Fees can be steep and frequent for students using the university-adopted cards, including a variety of overdraft fees, inactivity fees, ATM and swipe fees, and fees to reload the prepaid cards.
  • Some fees currently assessed to students using campus cards are prohibited by law.
  • Potentially aggressive marketing tactics can make students captive customers.
  • Access to financial student aid funds placed on debit cards can be subject to limited availability of ATMs and thereby subject to fees, which would be prohibited by law.
  • Debit card contracts have been controversial at some campuses.
  • Some practices, such as outsourcing of student ID functions and pre-loading of disbursement cards, raise privacy issues.

Based on our evaluation of issues surrounding the growing campus card marketplace and their potential impact on students, we make a series of recommendations at the end of this report, to campuses, to banks and financial firms and to regulators. Here is a summary.

Campus Card Best Practices

To ensure that students are benefiting from a campus debit card program, campus debit cards should adhere to the following best practices:

1. Students Should Have an Unbiased Choice of Where to Bank.  The bank account you get as a student may carry you for decades and such an important choice shouldn’t be skewed by who gave the school the best deal. For financial aid disbursements, campuses should provide students a diverse set of disbursement options that always includes the ability to choose to use their own existing bank account and ability to receive a check.

2. Low Fees.   Campuses should negotiate away fees that students incur on their debit cards as well as make it easier for student debit card consumers to avoid fees.  A specific list of fees that should be eliminated appears below under “Key Recommendations for Campuses.” 

3. Safe Checking Fees.  For accounts not related to federal student aid, student checking accounts should meet the minimum requirements of the FDIC Model Safe Accounts Template, modified to address the needs of students. Fees on student accounts should be commensurate with services rendered and all fees should be provided prominently on the banks website or mailers.

4.  Unrestricted Access to FundsCampuses should provide, and regulators should require, an adequate number of regularly-replenished on-campus ATMs for financial aid disbursement. ATM deployment measurements should be based on need during peak-use times, such as the beginning of a semester or quarter. In addition, colleges should also explicitly prohibit imposition of point-of-sale fees for safer, PIN-based transactions.

5. Strong Consumer Protections.  Given the public’s perception that all debit cards are the same, whether it is a debit card associated with a bank account or a pre-paid card, colleges should insist that all campus cards carry the same level of consumer protections extended to ATM/debit card customers under the Electronic Funds Transfer Act.  Appendix 2 goes into more detail on campus debit cards and consumer protections.

6. No push marketing.  The marketing surrounding these cards may result in a student being pushed into a product or an agreement that isn’t best suited for his needs. Given that the campus debit card has already been chosen by the college, providing an implicit endorsement, there must be strong rules to avoid push marketing are in place. Students should not be subjected to branding and advertising by banks and financial companies unless they affirmatively opt-in.   Students should be able to opt in or out of the university-sponsored debit card program through the campus itself, rather than making the option through provider-sponsored venues such as a provider website.

7.  No Conflict of Interest.  Many schools engaged in partnerships with banks or financial firms can receive large financial incentives, which at least create the appearance of a conflict of interest.  Contracts should be disclosed so that the public knows that the school chose the debit card program that gives students the best deal rather than the one that gave the college the most money.

 

Key Recommendations for Policymakers

To ensure that students are protected within a campus debit card program, regulators can make the following changes to federal rules that define the market:

1)  Lower the fees for financial aid disbursement cards.  Policymakers should update federal regulations that govern disbursement of federal student aid to ensure high banking fees are not charged to students, who can afford them the least.

2)  Increase transparency and tracking.  Policymakers should collect more data on debit card practices on campus to better understand the market. Policymakers should extend important transparency provisions for credit card contractual relationships included in the CARD Act to any debit card contracts on campus.

3) Enforce the law.   The Consumer Financial Protection Bureau, other bank regulators and the Department of Education should, as appropriate, supervise key players in the marketplace and use enforcement action if needed to make sure firms comply with the laws and that students receive every protection afforded to them under the higher education and financial services laws.

4) Other Recommendations.  In the Recommendations section of this report,, U.S. PIRG Education Fund provides a more detailed list of regulatory changes that policy makers can pursue, as well as tips for students who must navigate the muddy waters of the campus debit card marketplace..

   

[1] See Saunders, Lauren, “Unemployment Compensation Prepaid Cards: How States Can Deal Workers A Winning Hand by Discarding Junk Fees,” 10 May 2011, National Consumer Law Center, available at http://www.nclc.org/issues/unemployment-compensation-prepaid-cards.html (last visited 14 May 2012),

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