Monday, March 17, 2014
The GAO reported in College Debit Cards: Actions Needed to Address ATM Access, Student Choice, and Transparency that 80 percent of campus card agreements are for debit cards, with the remainder for prepaid cards. But the schools which offered the programs were "disproportionately large," with enrollments constituting about 40 percent of all higher education students, the agency said. "However, the percentage of students enrolled in their schools' college card programs was unknown," the GAO added.
The GAO found that campus card fees were comparable to mainstream general purpose reloadable prepaid cards offered by banks and credit unions. However, the agency could not obtain hard data on the totality of fees that students pay to use the cards. "The total fees students pay are not known, and some providers declined or said they were unable to provide these data to GAO," the agency added.
Additionally, the GAO questioned the motives of certain schools. "[T]he information presented at some schools appears biased toward encouraging students to choose the college card over other options," the GAO said. The agency is in agreement with the Consumer Financial Protection Bureau's stance that students and parents should know if schools have financial incentives to encourage students to use specific card products.
The GAO recommends that Congress pass legislation requiring providers publicly disclose the campus card agreements they have with schools by filing them with the Consumer Financial Protection Bureau. The GAO also advises that the Department of Education clarify what it means by "convenient access" when it comes to ATMs for students, since students may incur unnecessary fees when making cash withdrawals of federal aid loaded on the cards when schools provide limited access to in-network ATMs.
The report put PNC Financial Services Group Inc., a merchant services provider and a First Data Corp. alliance partner, among the top eight campus card providers in the United States. The report said PNC has a 6 percent market share, compared to market leader Higher One Higher Holdings Inc., which services 57 percent of the market. (The Consumer Protection Bureau of the U.S. Department of Justice is investigating PNC for potential fraud committed against consumers via its third-party affiliations.)
The GAO report also mentioned payment processor Heartland Payment Systems Inc. as a campus card provider with a 3 percent market share. The Princeton, N.J.-based processor came out in favor of the GAO's recommendations, saying its campus card division provides programs for over 2,000 colleges and universities.
"Many college administrators have been searching for a way to properly evaluate campus debit and prepaid card providers," said Ron Farmer, Executive Director of Heartland Campus Solutions ECSI. "Now they know what to look out for and can feel more confident that they are making the right decision for their schools and their students, even the nonbanked and underbanked."
The GAO cited federal benefits programs, such as the U.S. Department of Labor's Unemployment Insurance program, as a standard for campus card programs to emulate. Heartland said it modeled its campus card program on such programs, where consumer protections are written into contracts.
Heartland also noted that it offers clear options with its program. "Heartland's Choice process lets students easily choose to have their refund placed on a prepaid card, transferred to a bank account or sent to them by check," said Bill Norwood, Director of Product Architecture, Heartland Campus Solutions ECSI. "And our contracts with our campus customers are completely transparent, with no fees paid to them that could impact their neutrality."
In a Feb. 12, 2014, blog post titled What sunshine for student financial products can show us, Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau, said that, according to the CFPB's survey of school administrators, 69 percent of debit campus card agreements are already available to the public.
The CFPB's investigation of these agreements uncovered certain characteristics. "We found several agreements where a financial institution offers a licensing fee in order to use a school's logo to market its financial products," Chopra wrote.
Other agreements, according to Chopra, offer bonuses to schools for signing up students for a financial institution's student checking account marketed on campus. "For example, one agreement paid a university an upfront payment of $400,000 and an additional bonus of upwards of $200,000 each year if enough new students signed up for the accounts," Chopra said.
The CFPB also found that campus card providers offer discounts to schools in exchange for marketing access to students. "Some colleges receive discounted – or even completely free – services in exchange for allowing a provider to market financial products to students," Chopra wrote. "For example, we found many agreements where a financial institution charges a university to transfer loan and scholarship funds to students."
But some school officials informed the CFPB that those charges may be heavily discounted, since the agreements allow providers to market their financial services to students receiving financial aid. "This gives the financial institution a foot in the door to generate significant revenue in fees from students, making it worthwhile to provide discounted services to schools," Chopra wrote.
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