NACUBO Offers Debit Card Best Practices
December 14, 2012
In response to the growth of campus-based banking options for students in recent years and to growing public interest in student debit card options, NACUBO recommends to colleges and universities the best practices outlined below. NACUBO places an emphasis on keeping students' interests first and urges colleges and universities to ensure that students have sufficient information available to allow them to be informed consumers.
In a press release issued today, NACUBO President and CEO John Walda remarked, "Higher education institutions are constantly exploring ways to offer improved service to students and their parents, as well as find cost savings for the institution, and campus debit cards have evolved to provide an administratively efficient, cost‐effective, customer‐oriented product. At the same time, colleges and universities need to ensure that students' consumer interests are protected as they shift more financial transactions to third-parties."
Following the release of a U.S. Public Interest Research Group (PIRG) report in May of 2012, several members of congress have expressed considerable interest in debit card practices on college campuses. In June, fifteen financial institutions and third-party servicers that provide campus debit and prepaid cards to colleges and universities received letters from Sen. Dick Durbin (D-IL), Sen. Jack Reed (D-RI) , and Rep. Peter Welch (D-VT) that expressed concern about fees associated with campus debit and prepaid card programs. Several higher education associations received a letter July 12 from Sen. Durbin and six other senators expressing interest in working with the higher education community to address concerns raised in the U.S. PIRG report.
The report is highly critical of business arrangements between financial institutions and colleges and universities to produce student IDs that may also function as debit or prepaid cards and be used to disburse financial aid. The report acknowledges that a well-structured debit card program can provide benefits, but it claims these arrangements may also subject students to high fees, which can consume the resources they need for education expenses.
Debit Card Offerings Growing
NACUBO conducted a survey about student debit card options on college and university campuses in July 2012 and learned that of the institutions responding, 26 percent reported that they contract with a third‐party vendor to process credit balance refunds; a third of those that do not are considering doing so in the future. Only 12 percent indicated that they have a relationship with a bank, which is not involved in the credit balance refund process, and which allows students to tie bank accounts to the institution's primary campus identification card. However, nearly 14 percent of institutions that do not have an existing banking‐ID card relationship are considering it for the future.
NACUBO's survey also found that many schools use a competitive bidding process, and are already making the effort to negotiate good terms for students, be it for processing refunds or arranging campus‐card affiliated personal banking choices. Following the survey, NACUBO also recognized that best practices and guidance needed to be developed and shared broadly.
The following guidance was developed with significant input from NACUBO's recently established Student Financial Services Council, a voluntary group of NACUBO members hailing from business offices at colleges and universities from across the country and across sectors.
Safeguarding Student Finances:
Guidance for Campuses Offering Student Debit Card Options
- Keep Students First. In ongoing efforts to hold tuition and administrative expenses down, college administrators seek cost savings in a number of ways, including automating manual processes, contracting with private operators for support functions, and establishing new revenue streams. Institutions should put students' interests at the forefront, making business decisions to enhance services available to students-and not do so at their expense.
- Encourage Students to Use Financial Institutions. Many students enrolling for the first time at a college or university have not yet established personal checking or savings accounts. However, those with bank accounts can typically better manage their money, do not have to carry large amounts of cash, and can benefit from the convenience of debit cards and transaction records. Additionally, most bank accounts are insured and offer fraud protection. Therefore, institutions should encourage students to use financial institutions.
- Offer Choices. Students have the right to choose their banking relationships, and this should be unambiguous in campus communications. Campus communications should also clearly state that students who already have accounts can use them. Some students may not have or be eligible for a traditional bank account, so may prefer a campus-affiliated debit card option. Institutions should ensure that students have sufficient information available to allow them to be informed consumers.
- Encourage Electronic Refunds. Electronic transactions have become the norm in all aspects of consumer finance-from government payments to retail transactions-because they are faster, safer, less expensive, and more convenient. Schools should encourage students to receive their refunds electronically.
- Utilize a Competitive Process and Limit Exclusivity. The financial services arena is a fast-changing world for both the industry and consumers, with new options regularly emerging in the marketplace. Students and institutions should not be limited by outmoded choices. When seeking a vendor for financial services, institutions should use a competitive selection or bidding process. Institutions should also limit contracts to no more than five years.
- Engage Students in the Vendor Selection Process. Students are directly affected by campus contracts with financial institutions for student services, but are not always part of the decision-making process when a vendor is selected. Institutions should encourage student involvement in the process, which can include focus groups, representation on a selection committee, or consultation through student government.
- Comply with Federal and State Regulations. Colleges and universities take seriously their compliance with the U.S. Department of Education's regulatory and administrative requirements for the Title IV federal student aid programs. Institutions should take steps to ensure that administrators, staff, and vendors comply with all applicable federal and state regulations.
- Negotiate Low or No-Fee Options and Convenient Services for Students. Just as colleges and universities strive to provide high-quality academic experiences for their students, they must ensure that school-sanctioned services are also good consumer values. For example, school-endorsed financial institutions should provide adequate ATM access on campus or ensure that banking facilities are readily accessible on or near campus, offer low-cost student account options, educate students to be informed consumers of financial services, and publish clear and transparent fee schedules.
- Examples of fees and services institutions should pay particular attention to include:
- Account fees-set-up, requesting a card, monthly service, minimum balance.
- Spend fees-making a credit card or debit transaction at a point of sale.
- Cash fees-ATM fees, available surcharge-free networks, cash back at point of sale.
- Deposit fees-depositing money by ATM, ACH, direct deposit, teller.
- Help fees and services-online help, voice help, live agent and/or teller options, balance inquiry.
- Caution fees-inactivity, replacement, overdraft.
- Bill payment options and fees-online pay anyone.
- Avoid Unscrupulous Marketing. Institutions should use great discretion when agreeing to a communication plan to ensure that students are presented with a fair explanation of services and not with misleading, biased, or aggressive marketing schemes.
- Make Contracts Transparent. Institutions should publicly disclose the terms of any agreements with third parties issuing debit cards to students.
Director, Federal Affairs