Banks Fight CFPB Claim That Campus Pacts Are 'Secretive'

WASHINGTON — Bankers and industry representatives are taking serious issue with a Consumer Financial Protection Bureau alert that calls into question the transparency of contracts between colleges and financial institutions that offer student products.

The CFPB's Aug. 6 blog post listed 14 Big Ten universities and whether their contracts with financial partners related to on-campus account offerings could be found online. The blog — written by CFPB Student Loan Ombudsman Rohit Chopra, who cautioned students about "secret banking contracts" — essentially criticized 10 of the partner banks for not making all or part of their agreements available.

But some institutions on the list say the blog unfairly suggests shady arrangements between the banks and schools. Banks also say they were not notified by the agency ahead of time to confirm the information before being publicly called out. Meanwhile, the names of two of the financial institutions originally included in the posting have apparently been removed after their inclusion on the list was found to be in error.

"The language used by the ombudsman is not very productive. Basically, he is shaming banks and universities," said Richard Hunt, president and chief executive of the Consumer Bankers Association. "First, he says [banks and universities are] engaged in risky practices but the blog displays zero information to support this claim. And that's very unbecoming of a serious regulator."

The alert followed an earlier CFPB memo in December about "the potentially risky practice of making secret payments" to schools to market deposit products, prepaid and debit cards, and other account-related services. At that time, the agency called on financial institutions to post their agreements with colleges and universities voluntarily on their websites. Under the law, banks must already publicize similar agreements related to credit card products, stemming from concerns about kickbacks.

Chopra's blog included a link to a sample letter sent to a university partnering with a financial institution that has not made the contract available. "We wanted to alert you that this failure to be transparent may pose potential consumer protection risks," he wrote in the letter.

But some banks identified by the agency as not making contracts available say the list could lead to a mischaracterization of their relationships with colleges.

For example, a representative from Wells Fargo said the bank's partner schools are simply those that participate in the Wells Fargo Campus Card program, and that those schools are free to disclose the terms of that program. On the CFPB's list, Wells was identified as not making available on its website a partner contract with the University of Nebraska.

"Our relationships are not secretive: we maintain a list of schools participating in the Wells Fargo Campus Card program on our web site, and most of our school customers are public institutions that will provide the terms of their agreements upon request," said Kristopher Dahl.

But a CFPB spokeswoman said greater awareness about what details are in the agreements will simply allow consumers to make more informed choices.

"This is part of an ongoing, voluntary process aimed at determining whether the market is working for students and families," the spokeswoman, Moira Vahey, said. "The campus banking market is shifting from student loans and credit cards to new products. But unlike the market for credit cards and student loans, students and families lack information about the financial incentives provided to schools to market certain products.

"If financial institutions provide transparency across the market for campus banking products, this will make the market work better. Not publicly disclosing these agreements, however, may raise potential consumer protection risks."

To be fair, some of the financial institutions on the list said their contracts do indeed involve paying the schools a royalty, which is usually set by the college, to provide debit cards.

But many note that there is nothing nefarious about those payments. Bankers that do give some form of compensation to the school for offering debit cards to the students also argue that most of the products are free to the students and paying the schools frees up funding for the university to reinvest in student services and scholarships, which are sometimes tied to the contracts as well.

"Our campus banking programs are designed to benefit students and schools alike. Students benefit from the value and convenience of the banking services provided and always have clear choices about whether to participate," Dahl said. "Schools enjoy such benefits as convenient access to on-campus ATMs and branches, or various rents, royalties, or other payments that can offset schools' expenses, also benefiting students."

Others said the only payment they make is to lease space on campus for branches or automated teller machines, and that that is an important distinction.

"Our contract with the University of Maryland is a lease agreement for our on-campus branch, through which we offer a no-fee student checking account in addition to basic banking services," said Pam Girardo, a spokeswoman for Capital One. (The bank was cited for not making its contract with the school available.) "We do not receive any compensation from the university for opening accounts or issuing debit/ATM cards, nor do they from us," Girardo said.

Apparently, the CFPB may agree there is a distinction between the two. The bureau actually removed the names of two Indiana credit unions originally named on the list after they said the contracts were only tied to the rental of retail space, and not to compensation for marketing financial products.

"I think it was an error on someone else's part referencing it that way [originally], and we just contacted them to correct it," said David Sipes, vice president of marketing and business development at Indiana University CU.

The list also identifies three situations involving TCF Bank, in which the Minnesota-based institution only made its contract "partially" available for agreements with the University of Michigan, University of Minnesota and University of Illinois, Urbana-Champaign. The contracts redacted the total compensation amounts paid to the schools. Since those amounts are based on the total number of accounts students open, the bank says revealing the total payments would reveal their price structure, which is proprietary.

Mark Goldman, a spokesman for TCF Bank, said the dollar amounts are redacted only for "competitive reasons."

"We conduct all of our relationships in the spirit of what the CFPB advocates. We put these contracts online for the public to review and if anybody wants to take the added step to review the redacted information, they can file a FOIA" with the universities, Goldman said. "We believe it's more important to see these agreements in the way that they are structured, which is in a very logical, fair way."

Still, some student advocates say there is good reason for the CFPB and other regulators to be concerned about the contracts following cases in which financial institutions were accused of treating students unfairly. In one notable recent example, the account services company HigherOne — based in New Haven, Conn. — was alleged to have distributed excess financial aid dollars through student debit card accounts, but then also tacked on exorbitant fees.

"The trend with third-party servicers has been one to exploit students like we've seen in the HigherOne case," said Maxwell Love, vice president of the U.S. Student Association, a student advocacy group. "One of the reasons why I believe the CFPB did seek to include the traditional banking relationships on the blog are because if those were left unopened or unregulated, we might see new marketing practices or products emerging that could harm students. And they just wanted to draw a line in the sand to make sure students are being protected."

Aaron Passman of the Credit Union Journal contributed to this story.