A new report from the Consumer Financial Protection Bureau (CFPB) has found that many college-sponsored financial products, like credit cards and deposit accounts, include unusual fees and worse terms.
The annual student banking report looked at the steep costs and unfavorable terms the financial products may carry that include fees above prevailing market rates. Those fees come despite requirements that when offering the products, the institutions consider their students’ best interests under U.S. Department of Education rules.
“Many students get their first credit card or deposit account when they enroll in college, and banks know that consumers are unlikely to move to a different provider once a product is integrated into their financial life,” CFPB Director Rohit Chopra said. “Schools should take a hard look at the fees and terms of the products they pitch to their students and alumni.”
According to the report, many colleges offer sponsored and co-branded financial products, like deposit accounts, credit cards and pre-paid cards, to their students and their alumni. Students, the CFPB said, may be likely to accept their school’s recommendation when they arrive on campus. That acceptance may put colleges and their financial institution partners in a position to not lower fees or provide low-cost products. CFPB said the arrangements can be lucrative for schools, as financial institutions pay millions of dollars in flat-fee marketing and per-sign-up kickbacks to colleges and universities.
In 2022, the CFPB’s College Banking and Credit Card Agreements report found the high fees charged on student banking products endorsed by colleges may be steering students into expensive financial products. The latest report found that many colleges continue to employ marketing strategies for financial products that may mislead students into products that may not be the best choice for them.
The latest report found that colleges’ financial product partners may charge high or atypical fees to students, like overdraft and non-sufficient funds fees. Additionally, the report found that accountholders at Historically Black Colleges and Universities, as well as at for-profit colleges and Hispanic-serving institutions pay higher-than-average fees per account. And the report found that when a student graduates, they may face unexpected fees as certain products marketed as free “sunset” and are no longer available to the student.