What sunshine for student financial products can show us
Recently, we alerted financial institutions about the potentially risky practice of not readily disclosing arrangements with colleges and universities to market bank accounts, prepaid cards, debit cards, and other financial products to students. Director Cordray called on financial institutions to voluntarily make these agreements available on their websites.
According to a survey of school officials, 69 percent of debit card agreements are already available to the public, since many contracts with public colleges and universities are subject to state open records laws. We identified agreements available in the public domain by checking state open records databases and other websites where agreements were disclosed.
Some financial institutions offer low-cost student financial products as a way of developing long-lasting relationships with students as they start their financial lives. For example, one credit union told us that “over 85 percent of student accounts remain open one year following graduation.” But other financial institutions generate a significant amount of their revenue on these products while students are currently in school.
Here’s how they work
Some of these agreements were difficult to find, but here are a few examples of the different agreements financial institutions have with colleges and universities. We didn’t verify whether these agreements are current, but the examples give us a sense of how some of these agreements work.
1. Direct payments for using school logos
We found several agreements where a financial institution offers a licensing fee in order to use a school’s logo to market its financial products. (In 2008, Congress restricted this practice for student loans, but not for other financial products.) For example, we found an agreement which provides $25 million to a university for use of the school’s logo, among other benefits.
2. Bonuses for recruiting students
Other agreements provide bonus payments based on whether students sign up for a financial institution’s student checking account marketed on campus. For example, one agreement paid a university an upfront payment of $400,000 and an additional bonus of upwards of $200,000 each year if enough new students signed up for the accounts.
3. Discounted prices in exchange for marketing access
Some colleges receive discounted – or even completely free – services in exchange for allowing a provider to market financial products to students. For example, we found many agreements where a financial institution charges a university to transfer loan and scholarship funds to students.
However, some school officials have told us that these charges may be heavily discounted, since these agreements provide the financial institution with unique access to market to students receiving financial aid. This gives the financial institution a foot in the door to generate significant revenue in fees from students, making it worthwhile to provide discounted services to schools.
Committed to transparency?
Many financial institutions offer good products at competitive prices. But as we’ve stated before, voluntarily disclosing these arrangements is a sign of a financial institution’s commitment to transparency when marketing deposit accounts, prepaid cards, financial aid disbursement accounts, and other financial products to students. In doing so, they also want to make sure students know that they have a financial relationship with their school. Responsible financial institutions also want students to know they don’t have to choose their product if they don’t want to.
Actions you can take
Students, schools, financial institutions, or anyone else who wants to share information about the availability of these agreements can email us.
If you are a student, or family member of a student, you can check out our guide to Managing Your College Money and our consumer advisory on accessing student loans and scholarships.
If you have a complaint about a student loan, checking account, or credit card, you can submit a complaint online or by calling (855) 411-2372.