CFPB Takes Aim at Prepaid, Debit Cards on College Campuses

WASHINGTON — The Consumer Financial Protection Bureau has its sights set on prepaid and debit cards offered to college students as such products are filling the gaps left by credit card issuers which have largely left the space, according to a study released by the agency Monday.

The CFPB's annual report on college credit card agreements revealed that offers on campuses dropped nearly 70% since Congress passed a law in 2009 that tightened up card disclosures.

Instead of offering credit cards, financial institutions are now partnering with colleges to offer debit and prepaid cards. The CFPB sees this as a concern because such agreements are not required to be publicly disclosed, unlike credit cards.

"Today, financial institutions are cutting more deals with colleges and universities to market student banking products that require less disclosure," said CFPB Director Richard Cordray in a press release. "Schools and financial institutions should be up front on their website with students and their families about whether or not the school is being compensated to encourage students to use a specific account or card product."

The study said it was clear that the Credit Card, Accountability, Responsibility, and Disclosure Act, which was passed in 2009, helped reduce the number of credit cards offered to students. The number of card agreements dropped to 336 in 2013 compared to 1,045 four years earlier, according to the study. The royalties and bonuses that card issuers paid to colleges also dropped nearly in half to $43 million last year, down from more than $84 million in 2009. The CARD Act required that credit card agreements be publicly disclosed.

Still, the CFPB has pressured schools and financial institutions to publicly show their agreements concerning other financial products, like debit cards and prepaid cards, arguing there are less consumer protections and transparency with these products.

"In addition to credit card agreements, the CFPB is closely monitoring the marketing arrangements many colleges and universities have with financial institutions related to deposit accounts, prepaid cards, debit cards, and other financial products," the CFPB said in a press release. "Investigations by the Government Accountability Office, the Department of Education's Inspector General, and others have raised numerous concerns about conflicts of interest in these deals and their impact on students."

The CFPB launched an inquiry into partnerships between schools and financial institutions last year and later asked schools to voluntarily publicize those agreements. The agency took a step further this summer by publicly releasing a list of some schools and their partnering financial institutions in which the CFPB could not find their agreements easily accessible online (The CFPB had to remove some names from that list after the parties proved such agreements did not exist).

The CFPB's latest study took another sample of colleges and university websites to see whether it could find the card agreements online. It looked at 35 websites and found 80%, or 28 of the campus websites, did not disclose the agreement or how to request more information online.

Consumers Union, the advocacy division of Consumer Reports, praised the study and pressed regulators and Congress to look at further reforms to financial agreements marketed to students.

"Students deserve to know whether their school stands to profit from financial products being marketed on campus," said Suzanne Martindale, staff attorney for Consumers Union, in an emailed statement. "Federal regulators should make sure schools are following the law by disclosing credit card agreements to the public and these same reporting requirements should apply to debit and prepaid cards."

Industry groups, however, have long argued that publicizing the contracts does not necessarily change the student's often voluntary decision to sign up for a debit or credit card.

"We agree students need clear information to make intelligent choices that will benefit their experience with financial services and products," said Richard Hunt, president and chief executive of the Consumer Bankers Association, in an emailed statement. "Students are never required to use any product or service. Further, it remains unclear how positing proprietary contracts would benefit consumers, and what evidence exists which shows consumers are being harmed by these agreements."

Interestingly, though credit card agreements have sharply declined since 2009, the CFPB also noted that there are more card issuers and new account openings in recent years. The agency attributed most of this to a shift in which card providers are striking agreements with alumni rather than the campus itself.

"Nearly three-quarters of this new account growth, however, is accounted for by agreements between issuers and alumni associations, indicating that most new accounts likely are issued to alumni, not to students," the CFPB said in its report.

The study looked at 448 college credit card agreements from 26 issuers last year. This included five new banks and credit unions that issued agreements last year. FIA Card Services (owned by Bank of America) remains the largest player in campus card agreements, holding more than 50% of all the agreements in effect last year — four times that of its nearest competitor, Capital One. FIA Card Services also paid far more than the nearest competitors for its contracts, totaling nearly $32.2 million for 225 agreements in effect last year. That averages to about $142,990 per contract compared to Capital One's average of $11,840 per contract; though FIA has opened far more new accounts because of it.