For many college students, selecting a bank account is one of their first experiences with the financial system. With so many options, students may rely on their college for guidance on which bank account would best meet their needs. It’s easy for students to choose the bank that gives out freebies in the dining commons, puts the college logo on bank marketing materials, or can activate an account using their student ID cards.
Colleges often enter into marketing agreements with banks, which may generate revenue for the schools. According to the Government Accountability Office, at least 852 schools have agreements to provide debit or prepaid cards to their students. These marketing agreements may govern which banks and ATMs are available at convenient locations on campus, how banks can market to students, whether students can activate bank accounts using their ID cards, and how students can receive financial aid disbursements. If banks can attract students as consumers, they are likely to stay with that bank for a long time.
Unfortunately, colleges don’t always select banking partners that provide safe and affordable financial products to students. The revenue generated by these agreements can influence colleges to turn a blind eye when their banking partners engage in practices that harm students. The Consumer Financial Protection Bureau (CFPB) found that colleges weighted financial compensation to the school much more heavily than the features of student accounts in their competitive bidding processes, if the schools even bothered to consider account features at all. Several CFPB enforcement actions show that these partnerships can result in driving students towards bank accounts and prepaid cards that are laden with fees and contain unsafe features.
The CFPB took steps to reduce harmful college-bank partnerships by proposing a Safe Student Account Scorecard. This voluntary scorecard helps colleges understand how proposed student checking accounts or prepaid cards would impact students and promote transparency about the terms of college-bank partnerships. Colleges that use the Scorecard will ask prospective banking partners whether their card-based electronic accounts meet a number of Safe Student Account features, including:
- Free deposit insurance
- Free direct deposit
- Free online/mobile banking and bill pay
- Free electronic statements
- No account overdrafts allowed
- Two free money orders or e-checks per month
If the proposed account does not meet these criteria, banks will submit a list of fees and charges to the school, which can then identify the most competitively priced accounts. The Scorecard also advises schools to inquire about other standard and non-standard fees, additional free features, additional fees for other bank services, ATM network and customer service, and banks’ ability to comply with guidelines regarding marketing to students.
Woodstock Institute believes that the Scorecard will be an excellent resource for institutions of higher education looking to improve the banking services available for their students. We commented that the CFPB could make the Scorecard even stronger by expanding the list of Safe Student Account features to include:
- Low minimum balance and opening deposit requirements
- Rapid funds availability
- One free ATM withdrawal per month
- Free point-of-sale transactions
- Prohibition on deposit advance products
We also recommended that schools ask prospective bank partners to report on how they encourage Safe Student Account holders to save and build credit, as well inquire about other products the banks plan to market to students. Banks earn significant revenue from transitioning consumers into more profitable products, such as credit cards, but schools should ensure that banks aren’t steering students to usurious or abusive products.
College students are building financial habits that will last throughout their lifetimes, and the CFPB’s Safe Student Account scorecard will help them start off on the right foot. Institutions of higher education across Illinois and the country should use the Scorecard to make sure that students will have a safe and affordable place to keep their money, learn to manage their spending, and plan for the future.