Student Debit Card Demand: Block Those Fees
NEW YORK (MainStreet) A request by Senator Dick Durbin (D-Ill.) for the Department of Education's Inspector General to dig into fees charged by the issuers of student debit cards finally bore fruit when a report was released yesterday. It concluded that colleges and universities are too close to the third-party card vendors they use to disburse student aid. Students get whacked with user fees and their personal data is put at risk in the bargain. Higher One and Sallie Mae were identified as the largest vendors.
"Today's report demonstrates the clear need for the Department of Education and colleges to better protect students and their financial aid," said Durbin and Congressman George Miller (D-Calif.) in a joint statement. "We must closely examine the recommendations made in this report and work to ensure transparency, rein in fees, prevent conflicts of interest, and safeguard students' personal information." A separate report by the U.S. Public Interest Research Group's Education Fund concluded that over 9 million people are at risk of being gouged, adding to their existing student loan debt.
Based on the IG's report, debit card vendors have been flouting the requirements of Title IV of the Higher Education Act, from which all federal student loans, Work Study programs and other types of aid flows.
The Department of Education IF called for increased transparency and disclosure, including the annual average cost to account holders. The IG's report also wants to ban transaction or administrative fees charged to access Title IV funds, and for debit card vendors to address conflicts of interest and financial incentives in campus debit agreements. What constitutes fee-free access to campus ATMs would be defined, which would be important in spelling out when fees are applied. PIN fees, balance inquiry fees, account closure and card reloading fees are on the table.
Durbin and Miller also collaborated on a June 2012 letter to the director of the Consumer Financial Protection Bureau (CFPB) Richard Cordray expressing concern over the adverse financial impact debit card agreements between banks and schools may be having on college students. Durbin and Miller urged the CFPB to carefully examine the bank-affiliated student debit card practices at over 900 colleges and universities.
The CFPB responded by opening an inquiry last fall into the impact of campus financial products marketed to students by colleges to determine whether these arrangements are in students' best interests. The CFPB has found a shift in financial product marketing partnerships from college credit cards to student checking, debit and prepaid card products.
--Written by John Sandman for MainStreet