Last month, the Center for American Progress and Generation Progress submitted joint comments to the Consumer Financial Protection Bureau, or CFPB, regarding its proposed Safe Student Account Scorecard. Read the full comment letter here.
The financial products that college students use are often among their first steps toward financial independence. As colleges and universities offer co-branded or affiliated financial products on campuses, students deserve to know whether these products are truly a good deal. The proposed Safe Student Account Scorecard is a voluntary tool for institutions of higher education to collect and report information from banks and credit unions about proposed products during the contract review process, including the nature of colleges’ and universities’ potential financial arrangements under these contracts. This is a valuable first step to improve transparency and quality and to put added pressure on institutions to make decisions that are in their students’ best interests.
Safe and affordable financial products on campuses are particularly important because young Americans are disproportionately disconnected from the financial mainstream. According to the 2013 National Survey of Unbanked and Underbanked Households by the Federal Deposit Insurance Corporation, the share of Americans between ages 15 and 24 without a bank account—15.7 percent—is double the national average of 7.7 percent. Campus financial products have an opportunity to fill this gap, if done right. If young people are able to avoid the costs of living without a bank account—even under the most favorable circumstances, a worker may spend hundreds of dollars per year on financial services—these products have the potential to save them thousands of dollars over their lifetimes.
The recent history of credit card marketing on college campuses illustrates the potential for financial products to harm students. Despite having limited incomes and financial expertise, students were often able to take on unaffordable levels of debt through cards offered on campuses through marketing partnerships without proving independent income, expected salary, or even student status. In 2003, after two debt-related student suicides, the University of Oklahoma conducted a study on college credit card practices and found that roughly one-quarter of students had trouble keeping up with debt. The U.S. Public Interest Research Group found in 2008 that students were able to receive t-shirts; food; and, in some cases, even iPods when they applied for credit cards, without lenders actually verifying their ability to repay.
Thankfully, the Credit CARD Act of 2009 greatly restricted these tactics. In recent years, however, financial institutions have delivered other products—such as debit cards—through similar marketing relationships that remain detrimental to students. Some of these campus cards are worse than other products available in the financial marketplace, such as student debit cards that carry a 50-cent fee every time the card is swiped to make a purchase. By using the scorecard to collect and report detailed information about product features and fees, colleges and universities can ensure that the needs of students are taken into account.
When institutions focus solely on the bottom line and not on consumers’ desires and needs, products end up being more expensive and less attractive. For example, the promise of the Chicago Transit Authority’s Ventra card—an innovative transit card that doubles as a prepaid card—was dampened by high fees that led to criticism. And Virginia recently reversed its effort to distribute tax refunds on debit cards for those tax filers who do not have or choose not to use direct deposit after similar concerns about fees. Unpopular or poor-quality products such as these defeat the financial inclusion objectives that better products could achieve; they also cost consumers more in the long run. Instead, campus financial products should be designed to be affordable and attractive options that help students responsibly build their financial skills and independence.
To that end, the Safe Student Account Scorecard should apply to the widest range of products possible—both products marketed to students, such as bank accounts and prepaid debit cards, and products used to distribute financial aid, paychecks, or other payments. Two changes would strengthen the proposed scorecard. First, it should more clearly ask potential financial providers whether products are voluntary and what other means of receiving funds would be available, such as direct deposit to a student’s bank account. Prepaid card contracts have not always clearly given consumers this choice, as evidenced by some state unemployment cards and employer payroll cards. Prepaid cards should be an informed and attractive choice, but students who have other accounts should not be penalized for using them.
Second, the presence of free ATMs and information about ATM fees should be disclosed upfront. The federal Government Accountability Office has noted that on some campuses, limited ATM access leads to long lines and inconvenience for students who are merely seeking to access their own funds free of charge. This problem also exists for contracted prepaid cards in other contexts. For example, Californians lost $19 million in public assistance dollars to ATM fees in 2013 because of ATM networks’ limited reach.
Additionally, in order to help institutions of higher education better judge the proposals they receive, baseline data should be available on typical features and fees for comparable products. Requiring banks to demonstrate how their offerings compare to model products—or having the CFPB collect and report this information—would make it easier for colleges and universities to make these comparisons. And as part of their commitment to transparency, institutions that use the scorecard should make the results public across all potential vendors to demonstrate the range of products and financial relationships that they considered before reaching a decision.
While a voluntary effort, the CFPB’s proposed Safe Student Account Scorecard largely addresses the concerns posed by financial products marketed on college campuses. A strong scorecard will lead to better outcomes for young people by ensuring that the financial products colleges and universities offer on campuses are ultimately safe and affordable.
Joe Valenti is the Director of Consumer Finance at the Center for American Progress. David A. Bergeron is the Vice President for Postsecondary Education at the Center. Sarah Audelo is the Policy Director for Generation Progress.