Bank accounts marketed to college students could become cheaper if the Biden administration has its way.
The Education Department released proposed language this week that would ban banks from charging certain fees on accounts offered to students through their schools. The proposal comes after years of the Consumer Financial Protection Bureau, advocates and others raising concerns about the risks that deals between schools and financial institutions can pose to students.
Through these arrangements, colleges and financial institutions partner to offer students certain products. Consumer advocates worry that the deals allow financial institutions to take advantage of a captive audience with relatively little experience managing their finances, but the potential to become a lucrative lifetime customer.
During the 2021-2022 academic year, financial institutions earned more than $17.3 million in revenue from 650,000 bank accounts offered through these partnerships, according to the CFPB.
“What you see here is schools pushing financial products on students that are a worse deal than students can get in the open market,” said Mike Pierce, the executive director of the Student Borrower Protection Center, an advocacy group. “Students are paying tens of millions of dollars in junk fees to use these accounts that the schools are marketing.”
Through the proposed language it just released, the Education Department is signaling that some of the fees on these accounts are “not acceptable,” and is “offering a new vision for the kinds of guardrails that need to be in place,” Pierce said.
An end to insufficient-funds fees
The regulatory text focuses in large part on bank accounts that schools present to students to deposit their financial-aid refund or the money they receive in federal grants and student loans in excess of tuition and fees. Students often use this money to pay for rent, food and other living expenses.
The department is proposing to ban insufficient-funds fees and sunset fees — or fees that take effect after a student graduates or turns a certain age — on these accounts. It also wants to prohibit financial institutions from distinguishing between financial-aid funding deposited in the accounts and other types of deposits for the purpose of assessing fees.
The biggest player in the space, BMTX
BMTX,
currently charges a $2.99 monthly fee on its student checking account if the account receives less than $300 a month in recurring deposits. Federal financial-aid funds don’t count toward that $300 minimum.
“The department is saying here pretty clearly … we don’t want school vendors harvesting Title IV money,” Pierce said, referring to federal student loans and grants.
BMTX did not immediately provide comment on the proposal.
In addition to proposing to ban specific fees, the department is also clarifying the types of accounts the agency believes best serve students. The department first issued rules around these accounts during the Obama administration, after the biggest player in the market was accused of charging students high and unusual fees.
As part of those regulations, the department said bank accounts would be in compliance with the law if they “are not inconsistent with the best financial interests of students” — an opaque description.
In the text that has been released, the department said student bank accounts meet that standard if they’re “substantially similar” to the CFPB’s model for a safe student account. This model account doesn’t charge overdraft fees, fees for direct deposit, bill pay or insufficient funds.
The department’s proposals are still months away from being finalized. They will head to a group of outside stakeholders, who will weigh in on the plan before it becomes law. Still, the proposals signal the department is interested in making campus bank accounts safer for students in ways that advocates have recommended, Pierce said.
“The president hates junk fees, and this is just a perfect example of students getting soaked with junk fees,” Pierce said of the campus banking market.
From the archives (October 2023): Biden administration moves to eliminate all junk fees: ‘Folks are tired of being taken advantage of’
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