The Consumer Financial Protection Bureau is aiming to safeguard college students from a trend on campuses across the country: relationships between banks and universities. The partnerships are designed to encourage students to select checking accounts and debit cards from their college's preferred bank.
"Students and their families should know if their school, whether well-intentioned or not, is being compensated to encourage students to use a specific account or card product," Richard Cordray, director of the CFPB, said in a statement. "When financial institutions secretly give kickbacks to schools, they are engaging in risky practices."
According to statistics from U.S. PIRG, the federation of state Public Interest Research Groups, 2 in 5 college students carry a debit card issued through their campus. In some cases, the school's partnership with a bank can automatically tie the student's checking account information to his or her campus identification card. That may sound convenient, but some worry that a lack of regulation is leaving unsuspecting students open to potential problems.
"Financial institutions are using the lack of disclosure requirements around debit and checking cards to keep students in the dark," said Ethan Senack, higher education associate for U.S. PIRG.
Banks used to target students on campuses with credit card offers, but the Credit CARD Act of 2008 has made the banking industry move away from getting unsuspecting students to sign up for high-interest credit cards. While the revenue potential may be smaller now, the banking industry still needs to recruit a new generation of account holders, and debit cards and checking accounts are an easy place to start.
For banks, it's an introduction to what will be a very profitable consumer base as these students graduate, open credit cards and buy homes. For colleges, it's a way to make an additional profit. The advantages seem clear for everyone, except for one important group.
"Students have a right to know the details," Senack said.
What do you think? Should students know whether their school is profiting from its relationship with a certain bank?