Lawmakers Call on Education Dept. to Toughen Rules on College Debit Cards

April 24, 2014

In a move to protect college students from banking practices perceived to be unfair, 23 Democrats in Congress sent the U.S. Department of Education a letter on Wednesday urging it to revise its rules covering college-sponsored debit cards.

Under the proposed changes, banks that team up with colleges to offer debit cards to disburse student aid would be barred from imposing high fees, would be required to disclose their contracts, and would be prohibited from marketing the cards aggressively.

"When colleges partner with financial institutions and push students into putting their federal-student-aid refunds into high-fee accounts, it puts our federal investment at risk," according to the letter, which was signed by members of the Senate and House of Representatives, including Sen. Richard J. Durbin of Illinois, Sen. Tom Harkin of Iowa, and Sen. Elizabeth A. Warren of Massachusetts.

The goals outlined in the letter are consistent with proposals made by the department, which is in the midst of a rule-making process on college-sponsored debit cards, among other issues. The department, whose own inspector general criticized abuses by debit-card issuers last month, proposed revised rules last week, and rule-making sessions resumed this week.

Among the suggestions in the letter, the lawmakers urged the department to establish rules preventing colleges from forming preferred relationships with banks to offer debit cards that charge fees for students to gain access to federal financial aid. The letter also called for the abolition of revenue-sharing deals between colleges and banks, and suggested a policy that would require colleges to post their agreements with banks on their websites. And the letter proposed allowing students to deposit federal financial aid into their personal accounts without a delay or penalty.

The letter cited the results of a Government Accountability Office report, released in February, that found that about 40 percent of all college attendees enroll in institutions that have agreements with financial institutions to market debit cards to students. While the report said that amounted to about 11 percent of American colleges, it was unable to identify the percentage of students who enrolled in their colleges’ debit-card program.

While the GAO was unable to determine the total fees students pay for using college-sponsored debit cards, Higher One, which had a 57-percent market share in 2012, settled with the Federal Deposit Insurance Corporation that year for alleged unfair and deceptive practices that resulted in higher fees for consumers.

"Students should be able to make unbiased choices about the financial products that work best for them," the letter said. "Colleges should be recommending the financial products that provide the best deal to students, not the biggest financial reward for the institution."