A group of lawmakers in both the House and the Senate presented legislation Thursday to prevent financial institutions from paying colleges and universities to promote and steer students into checking accounts.
Many universities currently promote banks and financial institutions by offering to make student IDs double as debit cards. Colleges present them as a way students can get their financial aid money faster by having the money deposited directly into these accounts.
"Many of today's college students are being strong-armed into using financial products that are endorsed by their university," said Rep. George Miller (D-Calif.), one of the bill's sponsors. "These products often carry unnecessarily high fees that chip away at students' federal grants and loans, which should be helping pay for classes, not lining the pockets of banks. In reality, these ‘preferred’ products aren’t preferable at all."
The bills are presented in the House by Reps. Miller, Maxine Waters (D-Calif.) and Peter Welch (D-Vt.) and in the Senate by Sens. Tom Harkin (D-Iowa) Dick Durbin (D-Ill.) and Elizabeth Warren (D-Mass.). The legislation has 59 additional cosponsors, and already have support from the Center for Responsible Lending, the United States Student Association, U.S. PIRG, Consumers Union and Young Invincibles.
The Consumer Financial Protection Bureau, the Government Accountability Office and advocacy groups like the U.S. Public Interest Research Group have flagged these accounts as overly expensive, in some cases charging students "inactivity fees" and fees for documentation errors.
"Students already face a mountain of debt," Warren said in a statement. "Colleges should not be allowed to push students toward debit cards and bank accounts with high fees that chip away at the money they need to pay for school."
The leading provider of campus debit cards, Higher One Holdings, is under investigation by the Federal Reserve Bank of Chicago in connection with the practices of former bank partner Cole Taylor Bank. The inquiry follows a probe by the Federal Deposit Insurance Corporation, which accused the company of violating college students' consumer rights, and ended in 2012 with an $11 million settlement.
The arrangements vary. Some of these controversial checking accounts do not result in any monetary gain for the schools. In other cases, public universities collect anywhere from a few hundred thousand to more than $1 million a year from financial institutions to offer their accounts on student IDs. The legislation offered this week would prevent such deals between banks, financial institutions and colleges.
The legislation would also require public disclosure of agreements between campus debit card providers and schools, and calls on the U.S. Department of Education to establish a pilot program to examine additional low-cost alternatives for students to receive their aid, according to a bill fact sheet.