Bills Would Prohibit Revenue Sharing Tied to Bank Accounts

Two of the most influential Democrats on education issues, Rep. George Miller (D-CA) and Sen. Tom Harkin (D-IA), introduced legislation to regulate agreements between colleges and universities and financial institutions that involve student bank accounts or debit cards. Under the proposed legislation, revenue sharing would be prohibited, contracts would have to be made public, and institutions would have three years to establish processes to disburse credit balances electronically. The bills were introduced just days after the Department of Education's negotiated rulemaking exercise covering similar issues concluded without reaching consensus.

In statements, lawmakers compared deals between banks and institutions of higher education involving student bank accounts to concerns that arose in 2008 and 2009 about private lending and credit card marketing. They have borrowed heavily from laws passed in response to those issues in drafting these new bills, requiring schools to develop a code of conduct and directing the Consumer Financial Protection Bureau (CFPB) to collect and compile contracts and information from financial institutions.

Miller, ranking member of the House Education and the Workforce Committee, introduced H.R. 4714, the Curbing Abusive Marketing Practices with University Student Debit Cards Act (CAMPUS Debit Cards Act), with 64 cosponsors on May 22. On the same day, Harkin, chair of the Senate Health, Education, Labor, and Pensions Committee, introduced S. 2385, the Protecting Aid for Students Act of 2014. Text of the Harkin bill is not available as of this writing.

Proposed Requirements

Code of Conduct

The CAMPUS Debit Cards Act would amend the Higher Education Act to require a college or university that enters into a "preferred banking arrangement" to develop a code of conduct that prohibits conflicts of interest and requires that campus officials act in the best interest of students. The code of conduct would also need to prohibit:

• revenue sharing arrangements
• solicitation or acceptance of a gift from the bank by any officer, employee, or agent of the college or university involved in the arrangements
• staffing assistance provided by the financial institution
• consulting or contracting arrangements between campus employees and banks
• delaying or denying disbursement of Title IV aid based on a student's selection of a particular financial institution
• advisory board compensation

Disbursement of Credit Balances

Colleges and universities would have three years after enactment to establish processes to pay Title IV credit balances to students electronically. (Forthcoming results of a NACUBO survey indicated that slightly more than 75 percent of respondents already provide electronic refunds of credit balances.)

In addition, ED would be directed to work with the Treasury Department and CFPB to set up a pilot program to offer students the option of tapping into Treasury's Direct Express debit cards that the federal government uses to disburse funds to various benefits recipients, or another low-cost alternative. This idea was championed by student and consumer representatives at ED's recent Program Integrity and Improvement negotiated rulemaking exercise and ED proposed language that envisioned ED making direct payments of Title IV credit balances to students. The idea met with considerable skepticism from institutional representatives, particularly those from business offices, however.

Contract Disclosure

Colleges and universities would be required to publicly disclose and post on their Web site any contract or agreement with a financial institution "for the purpose of marketing a financial product." In addition, financial institutions would have to submit an annual report to the CFPB, similar to that required for campus affinity relationships under the Credit CARD Act. The annual reports would include agreements between the bank and the institution, alumni group, or foundation, the amount of any payments made during the year, and data on the number of accounts or other financial products opened during the year under the agreement and the cumulative total remaining open at the end of the year.