Report shows students pay more for college-sponsored accounts

Wednesday, December 12, 2018

 

Wells Fargo charges students the most in fees, on average, to have a bank account, according to a government report.

An investigation conducted by the Student Loan Ombudsman for the Consumer Financial Protection Bureau (CFPB) found that students paid $27.6 million in fees to banks over the last school year. The Bureau examined 573 colleges and universities over the 2016-2017 academic year and found that Wells Fargo charges students the most in fees, on average ($46.99), to have a college-sponsored bank account. That's nearly double the fees charged students by TCF National Bank and U.S. Bank, which ranked second and third in the report.

The CFPB's report highlighted the problem with college-sponsored accounts—financial products marketed to students by their schools. Colleges and universities allow financial institutions to exclusively provide debit or credit cards to students—typically sporting the school logo—in exchange for millions of dollars a year in royalties and bonuses.

The research was compiled by the CFPB's now-defunct Office for Students and Young Consumers, and shared with the Department of Education back in February, but it was not published until now, after several Freedom of Information Act requests were filed. Advocate groups that filed the requests were tipped off by former CFPB Ombudsman, Seth Frotman, who left the CFPB back in September. Frotman resigned from the Bureau, in part, because acting CFPB Director Mick Maloney chose to suppress this report.

Banks that paid colleges to promote their accounts had an average fee of $36.52, while banks that didn't do paid promotion had an average fee of $11.93 (these fees include maintenance and overdraft fees). Fees on the college-sponsored prepaid and debit accounts are of interest to taxpayers because they often represent taxpayer-funded student aid being shuffled to banks rather than available to students to buy books or pay other school-related costs.

While college-sponsored accounts have been around for years, the practice faced increased regulation under the Obama Administration. In 2015, the Department of Education passed new rules called “Cash Management” regulations that required schools to ensure banks didn’t charge students outsized fees that were “inconsistent with the best financial interests of the students opening them.” For example, schools were required to make sure card fees were consistent with, or below, prevailing market rates. However, it remains to be seen if this rule will continue to be enforced under the Trump Administration.

 

 

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