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Tier Two Arrangements

November 16, 2015

Tier Two (T2) arrangements are defined in the cash management rules as those between a college or university and a bank or other financial institution under which accounts are offered and marketed directly to students. The Department of Education has added new thresholds for determining which parts of the regulations apply depending on the number of students at the institution who receive Title IV credit balance refunds.

If an institution—for the three most recently completed award years—had an average of 500 or more students receiving a credit balance refund, or had an average of 5 percent or more of its students receiving a credit balance refund, all of the T2 provisions apply. NACUBO simply refers to these arrangements as "T2."

Fewer provisions apply if an institution has an arrangement with a bank but does not meet the thresholds described above. NACUBO refers to these arrangements as "Tier Two, Lower Threshold" or "T2-L."

Each of the T2 provisions is discussed in more detail below, with the regulatory citation and page numbers where ED's discussion of the topic in the preamble to the final rules can be found.

Unless otherwise noted, the provisions listed below are effective July 1, 2016.

Safe Harbor for Accounts Not Marketed to Students [§668.164(f)(4)(xi)]

Institutions may have agreements with banks that co-brand an account and use the school's name, logo, mascot, or other affiliation. If those accounts are not principally marketed to enrolled students so that they do not meet the definition of a T2 account, the institution must maintain records to demonstrate the accounts are offered generally to the public. (pg. 67144)

Student Choice [§668.164(d)(4)] 

Institutions with a T2 arrangement must establish—or have their servicer establish—a selection process where students have several options for receiving their credit balance refunds. Institutions must:

  • Inform students in writing that they are not required to open or obtain an account/access device offered through a specific financial institution.
  • Present options for students in a clear, fact-based, and neutral manner.
  • Prominently list a student's existing account as the first choice when describing the options for receiving credit balance refunds.
  • Ensure that initiating payments to a student's existing account is as timely and no more onerous to the student as issuing the payment to the T2 account.
  • Allow a student to change his/her previously selected payment option as long as the student provides written notification within a reasonable time.
  • Ensure no account option is preselected.
  • Pay the full amount of a credit balance refund (likely by check) within the appropriate time period when a student does not make an affirmative selection for payment method. (pg. 67151)

When describing the options for receiving credit balance refunds, institutions must prominently list a student's existing account as the first option. Further, institutions must list the major features and commonly assessed fees associated with each account offered under the T2 arrangement, and also provide a URL for the terms and conditions of each account. Because ED is working with the Consumer Financial Protection Bureau to create a uniform disclosure template, this provision will not be effective until July 1, 2017.

Sharing Personally Identifiable Information [§668.164(f)(4)(i)(A)]

An institution must receive a student's consent before it shares any personally identifiable information—other than directory information—with the bank. (pg. 67157)

Access Device [§668.164(f)(4)(i)(B)]

Institutions with T2 arrangements must ensure that a student's consent to open an account is obtained before an access device, such as a card, is sent to the student. Schools may send ID cards that can eventually function as an account access device to a student without obtaining his or her consent. The student will still have to provide consent, though, for the account functionality of the card to be activated. (pg. 67158)

Terms and Conditions of the Account [§668.164(f)(4)(ii)]

Institutions must inform students of the terms and conditions of accounts offered in a T2 arrangement, including major features and commonly assessed fees, before the account is opened. (pg. 67151)

No Fee for Opening Account [§668.164(f)(4)(x)]

Students cannot be charged a fee for opening an account or for receiving or validating an access device under a T2 arrangement. (pg. 67161)

Disclosures [§668.164(f)(4)(iii) and (iv)]

Institutions must, no later than 60 days following the most recently completed award year, disclose on their website the contract establishing the T2 arrangement. Institutions are allowed to redact portions of the agreement that would compromise "personal privacy, proprietary information technology, or the security of information technology or of physical facilities." Institutions will need to provide ED with the URL of the contract so the agency can include it in a centralized public database. These provisions are effective September 1, 2016. (pg. 67168)

Additionally, institutions must post on their websites the total consideration for the most recently completed award year, monetary and non-monetary, paid or received by the parties under the terms of the contract. If students have opened 30 or more financial accounts in a year under the T2 arrangement, the institution must also list the number of students with those accounts during the most recently completed award year, as well as the mean and median of costs incurred by the account holders. The institution also must provide ED with the URL containing these disclosures for inclusion in the centralized database. These disclosures, however, are effective September 1, 2017. (pg. 67169)

Convenient Access to Funds [§668.164(f)(4)(vi)

Students with accounts offered under a T2 arrangement must have convenient access to their funds—in part and in full up to the account balance—through a surcharge-free national or regional ATM network with a sufficient number of machines that are housed and serviced so funds are reasonably available to students, including when credit balance refunds are disbursed. (pg. 67162)

Conversion to Credit Cards [§668.164(f)(4)(vii)

Accounts under a T2 arrangement cannot be marketed or portrayed as, or converted into, credit cards. (pg. 67146)

Best Interests of Students and Compliance [§668.164(f)(4)(vii) and (ix)]

Institutions must keep the best financial interests of students in mind when negotiating the terms of a T2 arrangement. ED requires institutions with these arrangements to conduct due diligence reviews at least every two years to review whether the fees are, "considered as a whole, consistent with or below prevailing market rates." Contracts for T2 arrangements must allow for the termination of the agreement by the institution based on complaints received from students or a determination by the school that the account fees are not consistent with or are higher than prevailing market rates. (pg. 67172)

Colleges and universities cannot rely only on their financial institution to comply with the rules, reflecting ED's concerns that in the past institutions have been too passive in overseeing the actions of banks and financial institutions. Colleges and universities are charged with taking affirmative steps, by way of contractual arrangements with financial institutions as necessary, to ensure the provisions of the regulations are met with respect to all accounts offered under the T2 arrangement.

Regulations Apply to Enrolled Students [§668.164(f)(5)

The T2 regulatory requirements will not apply to an account if the student is no longer enrolled at the institution and there are no pending Title IV disbursements for him or her. This provision specifically allows institutions to share enrollment information with the servicer for this purpose, although it seems to limit it to Title IV recipients. NACUBO has raised concerns about non-Title IV recipients who may also choose the T2-L account. (pg. 67150)

Additional Resources

More tools and information on the cash management regulations are available in the Debit Cards and Campus Banking Products resource center.

Contact

Anne Gross
Vice President, Regulatory Affairs
202.861.2544
E-mail

Bryan Dickson
Senior Policy Analyst
202.861.2505
E-mail