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Federal File

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark

Federal Agency Scrutinizes College-Affiliated Financial Products

At a recent "Banking on Campus" forum, which called into question financial products and services marketed to college students, NACUBO reiterated its guidance to campuses to keep students' interests first. The association also emphasized that colleges and universities strive to enhance student services and meet the needs of students, while keeping administrative expenses low. College and university business officers are advised to review the related debit card guidance offered by NACUBO.

Echoing past scrutiny regarding preferred lender lists and affinity credit cards, which ultimately led to federal legislation, the Consumer Financial Protection Bureau (CFPB) in February issued a request for information. Published in the Federal Register, the notice asked about financial services and products offered by third parties in connection with credit balance disbursement, as well as affinity programs.

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For more on NACUBO's initial guidance, read "NACUBO's Debit Card Best Practices for Campuses," in Federal File in the February 2013 issue of Business Officer.

CFPB's notice posed 25 questions, designed to lead to better understanding of the nature of the marketplace and the way agreements between institutions and financial service providers are structured. The bureau, concerned about explicit and implicit endorsements by colleges and universities, also noted, "However, institutions of higher education may be uniquely positioned to create a beneficial environment for students in the selection of financial products and services."

On September 30, the CFPB hosted the forum "Banking on Campus" to share the results of the request for information and to further examine such financial services and products.

Sharing and Analyzing Responses

Anne Gross, vice president for regulatory affairs, represented NACUBO at the event. Other forum participants included current and former students; representatives from the Department of Education, the New York Attorney General's Office, and the TouchNet company; and consumer advocate organizations, U.S. Public Interest Research Group (PIRG) and the National Consumer Law Group.

During the opening remarks, Richard Cordray, CFPB director, raised concerns (based on the responses to the request for information and other public scrutiny) about the degree to which young people on campuses are offered financial products with fair terms and conditions.

Cordray stated: "Students and their families trust our colleges and universities for fostering ideas, learning, and betterment. These institutions can greatly influence the decisions that young people make because students want to believe their school looks out for them and puts their interests first.

"Unfortunately, trust in higher education can be undermined when schools are not careful about whom they partner with to provide their students with financial products and services. We are distressed to hear that some students feel pressured to use specific products and may be unaware that when they sign up for those products their schools are secretly making money."

Gross reiterated NACUBO's initial recommendation: keep-ing students' interests first. She also emphasized that colleges and universities do strive to enhance student services and meet student needs, while keeping administrative expenses low. She also stated that higher education institutions are constantly exploring ways to offer improved service to students and their parents, as well as finding cost savings for the institution. To that end, financial options such as campus debit cards have evolved to provide an administratively efficient, cost-effective, customer-oriented product. At the same time, colleges and universities should ensure that students' consumer interests are protected, as institutions shift more financial transactions to third parties.

When colleges look for a less-expensive way to provide enhanced services to their students, both win in terms of convenience, security, and efficiency.

Anne Gross, NACUBO

In further response to Cordray's comments and other participant critiques, Gross said, "This [NACUBO] plan recommends that campuses use competitive processes to select vendors and partners, and involve student representatives in their selection process-and that they be transparent about the terms of any contracts they enter into. They are challenged to negotiate low- or no-fee options and convenient services for students, and to oversee marketing to students to ensure that they [students] are presented with a fair explanation of services and not with misleading, biased, or aggressive marketing."

Gross reminded the parti-cipants that the consumer finance world is changing rapidly and that NACUBO's guidelines also encourage colleges to provide electronic refund options to students, because such choices are safer, faster, more convenient, and less expensive.

Beneficial Bank Relationships

With regard to available bank services, NACUBO polled its members in summer 2012, receiving responses from more than 400 institutions. Just 12 percent of the respondents to the survey indicated that their institutions had a relationship with a bank that allows students to tie a bank account to their student identification card.

In addition, NACUBO benchmarking data shows that only 4 percent, by dollar volume, of student credit balance refunds in 2012 were made to a stored-value card, with considerable difference in transaction treatment by type of institution. Community colleges, for example, account for most of that activity, with nearly 20 percent of refunds going to cards. In contrast, usage at research universities and small institutions is at one tenth of a percent or less.

NACUBO also pressed CFPB to ensure that all parties are talking about banking services in the larger context of those that are available from various financial institutions across the country, and to remember that colleges and universities are not the only types of public entities making these choices. For example, governments increasingly make such choices as well. NACUBO's Gross cautioned, "We need to avoid the temptation to focus on one type of fee, and use that as evidence of exploitation."

Lastly, Gross reminded the presenters and the audience that "the interests of colleges and universities often align with the interests of their students rather than oppose them. When colleges look for a less-expensive way to provide enhanced services to their students, both win in terms of convenience, security, and efficiency. When colleges can negotiate to provide options for students and at the same time provide additional outside resources for scholarships, academic program support, student activities, internships, and financial literacy education, it is again a win-win situation."

More Communication to Come

Lawmakers' interest in and public scrutiny of financial products and services marketed to college students has been high since U.S. PIRG released its May 30, 2012, report, "The Campus Debit Card Trap."

NACUBO anticipates that this issue will be further examined in an as-yet-unscheduled negotiated rulemaking round at the Department of Education. In an April 16 Federal Register notice, ED announced cash management rules as a topic for consideration.

It stated, "In particular, we are interested in reducing the time by which an institution must refund to a student any Title IV Federal Student Aid program funds that are more than the amount the institution charges for tuition and fees and other educationally related costs. ... In addition, we are considering developing regulations governing how an institution may use or invest Title IV Federal Student Aid program funds held in its federal or operating accounts, or—if the institution transfers the funds to a third-party servicer to make disbursements to students—how those funds are managed by the provider."  

NACUBO CONTACT Liz Clark, director, congressional relations, 202.334.2553, lclark@nacubo.org

RESOURCE LINK To access the video recording of the forum proceedings, go to the CFPB Web site at www.consumerfinance.gov/blog/live-banking-on-campus. Post your comments and reactions either on the site or via Facebook, Twitter, or YouTube.