WASHINGTON — The Consumer Financial Protection Bureau revealed in its
The CFPB, led by Director Rohit Chopra, says it intends to further investigate these practices, with a focus on identifying potential violations of federal consumer financial protection laws.
"Many students get their first credit card or deposit account when they enroll in college, and banks know that consumers are unlikely to move to a different provider once a product is integrated into their financial life," said CFPB Director Rohit Chopra. "Schools should take a hard look at the fees and terms of the products they pitch to their students and alumni."
The report, the agency's 14th pursuant to the 2009 Credit Card Accountability Responsibility and Disclosure Act, analyzed publicly available information on college websites to highlight the risks to consumers of financial products directly offered or jointly marketed to students by colleges and third-party providers.
The report found colleges commonly provide sponsored and co-branded financial products, including credit cards, deposit accounts and prepaid cards, to students and alumni. The report concentrated on two types of financial offerings: dual-purpose college IDs and college-sponsored credit cards. The CFPB's review identified 143 partnerships between colleges — or affiliated groups such as alumni associations — and credit card providers representing over 530,000 open accounts by the end of 2022.
The CFPB found that many student IDs serve as general-purpose debit or prepaid cards, enabling students to make on- and off-campus payments and access federal financial aid funds. The report highlights potential consumer risks associated with these dual-purpose IDs, including limitations on consumer access to prepaid card account balances, misleading marketing practices and promotional partnerships with merchants that may influence students' financial habits. The CFPB says colleges may use opaque marketing practices that may give students the impression that connecting their IDs to financial services is mandatory, and many colleges partner with financial institutions, such as BankMobile, PNC, Wells Fargo and U.S. Bank, to provide these dual-purpose ID services.
In contrast to dual-purpose cards, the report indicated a decline in the number of partnerships between colleges and credit card issuers since the passage of the CARD Act in 2009.
However, the agency noted thousands of new accounts are still opened annually through these partnerships, with alumni associations being a common target. Bank of America remains the largest issuer in this market, representing 27% of partnerships with schools and 56% of open accounts. Despite the overall decline in partnerships, the agency says it has ongoing concerns about college students relying on credit cards, with nearly one in three using them for tuition and fees and more than two in three having at least one credit card in their name. This reliance on credit cards contributes to an average credit card debt of over $4,000 for college students, according to the agency, something especially risky for those with student loans.
The CFPB says it plans to continue researching evolving credit card marketing practices, including email and online advertising, to assess whether credit card companies are violating any consumer protections in methods they use to pursue college students.
The agency found many of these products come with high or atypical fees charged by financial product partners — in many cases, banks and credit unions. Certain sponsored deposit accounts also impose overdraft and nonsufficient funds fees, despite a trend among major banks to eliminate such charges amid growing regulatory distaste for so-called 'junk fees' of various kinds. The report suggests that students may be inclined to accept what they perceive as their school's endorsement of certain banking or credit services, providing colleges and their financial partners with little incentive to lower fees or offer cost-effective alternatives.
"These arrangements can be lucrative for schools, as financial institutions pay tens of millions of dollars every year to colleges and universities, including flat-fee marketing deals and per-signup kickbacks," noted a
The burden of fees also varied by type of institution, with traditionally minority-serving colleges bearing an outsize level of fees per account. The report found that account holders at historically black colleges and universities, for-profit colleges and Hispanic-serving institutions were found to pay higher-than-average fees per account.
The CFPB's
"Today's report found that many colleges continue to employ marketing strategies that may mislead students into accepting products that may not be the best choice for them," the CFPB noted in a release. "the CFPB will continue to examine these practices and identify possible violations of federal consumer financial protection law."
