In December 2013, the Consumer Financial Protection Bureau called on financial institutions (FIs) to publicly disclose the debit and prepaid card program agreements they have with colleges and universities. The CFPB expressed concern that such agreements are designed to manipulate college students into opting into such programs.
"Students and their families should know if their school, whether well-intentioned or not, is being compensated to encourage students to use a specific account or card product," said CFPB Director Richard Cordray. "When financial institutions secretly give kickbacks to schools, they are engaging in risky practices."
By federal law, FIs must disclose credit card agreements with higher education institutions, but not debit and prepaid card agreements. The CFPB noted that the number of credit card agreements in the higher education sector has decreased in recent years as the market has shifted to student checking, debit and prepaid card products. The bureau warned that failure to disclose program details on these increasingly popular products raises potential consumer protection risks.
Heartland Payment Systems Inc. operates two types of card programs for students – the closed-loop OneCard and the open-loop Discover Financial Services-branded Acceluraid card. The latter product is a general purpose reloadable product designed for everyday use, but students can also load their financial aid on it. Both cards are issued by Central National Bank of Enid, Okla.
Heartland Chief Executive Officer Robert O. Carr told The Green Sheet that Heartland has received a request from the CFPB for basic information regarding its arrangements with higher education institutions and that it will comply with the request. "There is absolutely no reason for us to want to keep details from the CFPB or the public," he said. "We have made this information available where requested."
Carr noted that the CFPB's information request arose from complaints made by consumers and consumer advocacy groups over the practices of one service provider, and not Heartland. "We believe that it is not good business practice for the school to receive revenue sharing on these products," he said, adding that schools already receive revenues from student fees.
Lawmakers and consumer advocates voiced concern that some campus card providers are taking advantage of students by charging high or hidden fees, especially on student loan disbursement products. In June 2012, Sen. Dick Durbin, D-Ill., and Rep. George Miller, D-Calif., sent letters to the U.S. Department of Education and the CFPB, expressing concern that students are being "nickel-and-dimed" via fees on campus cards.
Durbin and Miller cited U.S. Public Interest Group (U.S. PIRG) Education Fund research that said as many as 900 colleges were "pushing students into using campus debit cards that carry numerous unnecessary, costly and unknown bank fees." The lawmakers said, "At a time when total U.S. student loan debt is reaching the $1 trillion mark, we should not allow costly and inappropriate debit card fees to add to that debt."
The May 2012 U.S. PIRG Education Fund report, The Campus Debit Card Trap: Are Bank Partnerships Fair To Students?, focused on Higher One Holdings Inc., considered the largest provider of financial aid disbursement solutions in the United States. The report said 12.5 percent of all federal financial aid recipients nationally receive "refunds" (funds left over after tuition is paid and used for education-related purchases, such as textbooks) via check, direct deposit or Higher One OneAccount prepaid debit cards.
In July 2012, it was reported that New Haven, Conn.-based Higher One was poised to pay a fine to federal regulators over allegedly illegal overdraft fees it charged students between 2008 and 2011. In August 2012, Higher One settled with the Federal Deposit Insurance Corp. and agreed to pay about 60,000 students in Oregon approximately $11 million for alleged unfair and deceptive fee practices. In November 2013, Higher One settled a $15 million class-action combined from separate suits filed in Alabama, Connecticut, Mississippi, Illinois and Kentucky.
Amid this controversy, Princeton, N.J.-based Heartland decided in June 2012 to eliminate three fees tied to Acceluraid: the $30 dispute, the $1 bill pay and the 50 cent card-to-card transfer fees. "[S]ince our business model is not based on student fee income, we wanted to further decrease the potential financial burden on students by eliminating these specific fees," Carr said at the time.
In 2009, Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act (the Credit CARD Act), which mandates issuers to disclose the terms and conditions of credit card agreements they have with schools. The CFPB, created by the Dodd-Frank Wall Street Reform Act of 2010, said it is required by law to make an annual report to Congress about these agreements.
In its most recent findings, the CFPB said the number of agreements declined by 41 percent between 2009 and 2012, with universities receiving 40 percent less revenue from the programs over the same time period. Additionally, the number of new credit card accounts dropped by 18 percent from 2009 to 2012, according to the CFPB.
The bureau said prepaid campus card program data is harder to find and cited a 2012 survey conducted by the National Association of College and University of Business Officers that said the majority of college debit card arrangements are available to the public. "But finding the details of these agreements can be a challenge for consumers and may even require that consumers file a formal request under state open records laws," the CFPB said.
There is no legislation mandating that campus card providers disclose program details, and the CFPB has neither issued regulations nor proposed that providers change their programs. Carr believes no new regulation is necessary. "Let the market decide," he said.
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