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Business and Policy Areas
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Tier Two, Lower Threshold Arrangements

November 16, 2015

Tier Two, Lower Threshold (T2-L) 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.

If a school had at least one student with a Title IV credit balance refund in each of the three most recently completed award years, only certain provisions of the T2 regulations will apply. Because of this lower threshold, NACUBO is informally classifying these arrangements "T2-L."

However, 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 will apply. NACUBO simply refers to these arrangements as "T2."

Each of the T2-L 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 and thus 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-L 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-L account.
  • Allow a student to change his or 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)

Further, institutions must list the major features and commonly assessed fees associated with each account offered under the T2-L arrangement, and also provide a URL for the terms and conditions of each account. Because ED is working in consultation with the Consumer Financial Protection Bureau to design 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-L 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-L 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-L arrangement. (pg. 67161)

Disclosures [§668.164(f)(4)(iii)]

Institutions must, no later than 60 days following the most recently completed award year, disclose on their website the contract establishing the T2-L 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 also 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)

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

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

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

The T2-L 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. (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