Back To School: Lawmakers Again Targeting ‘Abusive’ Campus Banking Practices

Lawmakers in both the Senate and House recently introduced companion bills designed to protect students from unfair banking practices involving campus-sponsored financial products, including debit cards. Opponents to the legislation, however, say is will limit financial choices for students and have other negative effects.

The Senate legislation is titled “Protecting Aid for Students Act for 2014,” and the House bill is called “Curbing Abusive Marketing Practices with University Student Debit Cards Act,” or the CAMPUS Debit Cards Act.

The bills would remove conflicts of interest and end kickbacks between financial institutions and schools, give students control of their financial aid and banking products, and provide transparency over campus-sponsored financial products, according to the congressional announcement of the legislation.

U.S. Rep. George Miller (D-Calif.) and Sen. Tom Harkin (D-Iowa) led the legislative effort. In February, the lawmakers released a Government Accountability Office (GAO) report that found various questionable practices that occur when colleges partner with financial institutions to market debit cards to students.

In April, 23 members of the House and Senate sent a letter to Secretary of Education Arne Duncan urging the department to tighten the rules governing debit cards on campus while Congress develops legislation to further rein in predatory financial practices that target students.

The new legislation follows recommendations from the GAO and the Inspector General of the Department of Education, and it extends existing protections for marketing credit cards and private student loans on campus. Among the organizations supporting the bill were the Center for Responsible Lending, the United States Student Association, the U.S. Public Interest Research Group, Consumers Union and Young Invincibles.

Financial institutions for years have forged partnerships with colleges and universities to gain access to young consumers. Their thinking has been that once they get the students into their systems early on they potentially could become lifelong customers, elevating the relationship as they grow into jobs once they graduate and have families.

However, to access the schools, some banks use tactics such as financial payouts to colleges that recommend specific financial products, according to the congressional release. Many banks often use questionable methods to steer students into accounts their colleges seem to but carry high fees, recent investigations into campus banking have revealed. In some cases, this guides students into needlessly expensive accounts that chip away at their student aid and make college more expensive. The schools, meanwhile, earn multimillion dollar kickbacks from the banks.

This isn’t the first time Congress has stepped in to address similar practices. Bills signed into law in 2008 and 2009 addressed approaches being used to push high-cost credit cards and student loans on campus. The new legislation would extend those protections to checking accounts, debit cards, and other financial products, “helping safeguard the $150 billion in federal student loans and grants students receive each year,” the release notes.

However, in a statement to PYMNTS.com, Ken Clayton, chief counsel at the American Bankers Association, notes that traditional banks of all sizes serve the needs of local colleges and universities every day, and do so at a reasonable cost.

“These bills would limit financial choices for students and parents, and raise costs for everybody,” he said. “Attempts to vilify financial institutions and require free services will limit consumer choice, increase costs for students and universities, and stifle innovation that has helped modernize higher education financing.”