Congress and federal regulators should crack down on financial arrangements between colleges and banks, students and consumer advocates said on Monday at a forum arranged by the Consumer Financial Protection Bureau.
In both live and videotaped testimony, students described how their colleges had steered them toward banks and other companies that offered the colleges revenue sharing, staff support, or other perks. Some said they had felt "pressured" or "obligated" to sign up for high-fee debit cards or checking accounts; others said they had simply trusted their institutions to recommend the best products available.
"I don't see why this collusion should be allowed to happen," said Mario Parker-Milligan, legislative director of the Oregon Student Association. "Cleaning up these contracts will send a message to college administrations that you cannot sell out your students."
Christine Lindstrom, director of the higher-education program for the U.S. Public Interest Research Group, suggested a "code of conduct" for debit-card and checking deals, much like the one Congress put in place for student loans five years ago. That code, enacted in the wake of a "pay to play" scandal involving student lending, barred revenue sharing by colleges and generally restricted co-branding (the use of a university logo or mascot) by lenders.
Lauren Saunders, managing attorney of the National Consumer Law Center, pressed lawmakers to ban all "compensation agreements" involving banking and debit cards, and to require colleges to make direct deposit the "first option" offered to students.
"When that profit motive is taken out, schools can focus on the mission of helping students understand their options," she said.
Monday's forum came seven months after the Consumer Financial Protection Bureau asked the public for information and feedback on financial deals between colleges and banks. The federal agency has received 162 responses from colleges, financial companies, technology providers, deposit-taking institutions, students, and consumer advocates to date.
Rohit Chopra, the agency's student-loan ombudsman, cautioned on Monday about signs that the deals had shifted from student loans and credit cards toward student checking, debit cards, and prepaid cards. Nearly 900 colleges have relationships with third-party providers of checking and debit or prepaid cards, he said. Meanwhile, the number of credit-card arrangements focused on alumni has fallen, from 1,045 in 2009 to 798 in 2011.
In general, the products colleges are promoting do not carry more-attractive features than other options do, he said.
Richard Cordray, the agency's director, said he was "concerned that some of our colleges and universities, whether well intentioned or not, may be encouraging or even requiring our young people to use financial products that do not offer the best deals."
Last week a group of seven Democrats in Congress sent a letter to nine major financial institutions requesting details about their arrangements with colleges, including how much money they had paid to colleges for marketing rights and whether they had presented gifts to college employees.