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The Ticker

Breaking news from all corners of academe.

Education Dept. Proposes Reining In Deals Between Colleges and Banks

By Andy Thomason May 15, 2015

The U.S. Education Department on Friday proposed new regulations aimed at reining in agreements between colleges and banks that want to market their products to students. The

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The U.S. Education Department on Friday proposed new regulations aimed at reining in agreements between colleges and banks that want to market their products to students. The proposed rules, scheduled for publication in Monday’s Federal Register, represent the Obama administration’s latest effort to curb those agreements, which can leave students on the hook for fees they may have incurred unintentionally.

Colleges and banks have reached hundreds of deals that, for example, allow students’ financial-aid refunds to be deposited into new bank accounts — often linked to co-branded debit cards — offered by the partner financial institution. Critics of the agreements say they expose impressionable students to fees by having colleges appear to condone opening unnecessary accounts.

Among other things, the department’s new rules would:

  • Prohibit colleges from requiring students to open a new account to deposit funds.
  • Keep banks that form partnerships with colleges from assessing overdraft fees to students.
  • Require that a new student’s existing bank account be presented as the default option for depositing funds.

Consumer groups, which have long called for such changes, hailed the department’s announcement as a necessary step. In a written statement, Lauren Sanders, associate director of the National Consumer Law Center, said the proposal was “sorely needed to fix a broken system where some schools put revenue-sharing deals ahead of the interests of their students.”

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More than 800 institutions offer debit cards or prepaid cards to students, according to a December report from the Consumer Financial Protection Bureau. While that total has increased in recent years, the number of agreements between campuses and banks to provide credit cards has dropped, spurred by the passage of a 2009 law that required colleges to disclose the terms of those deals to the government.

The financial-services industry has lobbied against such regulations, saying the department doesn’t have the legal authority to regulate how banks offer their products on campuses. “None of the provisions of the Higher Education Act the department relies on provide it authority to regulate bank products,” Dave Pommerehn, vice president and senior counsel at the Consumer Bankers Association, told Inside Higher Ed. “The statute does not address, let alone prohibit, fees charged by banks and credit unions for ordinary banking services provided to students.”

The proposed rules will be open to public comment for 45 days.

We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
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About the Author
Andy Thomason
Andy Thomason is an assistant managing editor at The Chronicle and the author of the book Discredited: The UNC Scandal and College Athletics’ Amateur Ideal.
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