Major Banks Charged College Students Over $27 Million in Fees in 2016-17

Inside Subprime: Jan 8, 2018

By Aubrey Sitler 

In December 2018, Politico obtained an unpublished Consumer Financial Protection Bureau (CFPB) report on college-sponsored bank accounts and financial products. The report, released after Politico filed a Freedom of Information Act request, provides an analysis of fees associated with financial products offered by 14 financial companies through formal agreements with over 500 colleges nationwide.

Most notably, it provides evidence that the 1,322,000 students who used college-sponsored debit cards or other products during the 2016-17 school year paid a whopping $27.6 million in fees collectively. One major US bank allegedly charged students the highest fees of all, averaging total fees per borrower of almost $50 — several times higher than those of other banks. Additionally, although they only provided about a quarter of the accounts, they reaped over half of the total fees paid by students.

The report also details differences in the nature of some of these arrangements between colleges and financial companies. That is, these banks are allowed to pay colleges for students who open accounts or use the financial products they’re promoting. Within the 457 colleges who were not paid at all by financial providers for the accounts and products they offered, there were 839,000 total active student accounts during the 2016-17 school year, and on average, students paid $11.93 in fees that year. By contrast, within the 116 colleges that were paid by financial providers, there were 482,000 total active student accounts, and those students paid an average of $36.52 in fees. These schools were paid an aggregate $16,657,800 to promote these financial products.

Of course, this begs some serious ethical questions, such as whether or not revenue sharing “encourages higher-fee financial products that crowd out competition from providers of accounts for which student account holders would avoid high fees and/or accounts where all student account holders overall would pay less in fees.”

This report also raises concerns over whether or not colleges and banks who enter into these kinds of agreements are in violation of Department of Education’s “Cash Management” rules, which require that any financial products promoted by institutions of higher education be “not inconsistent with the best financial interests” of students and that these colleges “must document that the account fees are at or below market rates.”

Although this report was never published by the CFPB, it was referenced in the resignation letter of former CFPB student loan ombudsman, Seth Frotman. In his letter, which was also obtained and published by Politico, Frotman alluded to the report’s findings and suppression as contributing to his resignation: “For example, late last year, when new evidence came to light showing that the nation’s largest banks were ripping off students on campuses across the country by saddling them with legally dubious fees, Bureau leadership suppressed the publication of a report prepared by Bureau staff.”

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