How Regulators Killed The Wells Fargo-Amazon Student Lending Venture

It was one of the more notable pair-ups in recent memory — in part, because it was so short.

Amazon and Wells Fargo announced in July that they were collaborating on student loans with a jointly run program that would have seen Prime Student members eligible for a 0.5 percent interest rate reduction on their Wells Fargo student loan.

But by the end of August, it was all over — suddenly discontinued without much in the way of explanation. This week, that explanation is starting to roll in.

As it turned out, Amazon thought it was offering a Prime perk — when what it was actually doing was walking into a political firestorm over student lending.

That storm is centered around rates — namely, the very much higher rates private student loans often charge versus federal loans.

Which lead to criticism of Amazon and Wells Fargo, whom consumer groups blasted for offering a “cheaper” rate on an expensive loan, when most students should instead be opting for a much lower interest rate federal loan. One group called the pair-up “a cynical attempt to dupe current students who are eligible for federal student loans with a record low 3.76 percent fixed interest rate into taking out costly private loans with interest rates currently as high as 13.74 percent.”

With the advocate outcry came senatorial involvement, specifically Senators Elizabeth Warren, Sherrod Brown, Dick Durbin and Patty Murray, who is from Amazon’s home state of Washington. Sen. Brown reached out to the CFPB and the Office of the Comptroller of Currency to see if the announced deal was perhaps leveraging deceptive marketing practices.

And suddenly, with two separate regulators looking into the program and senators calling around the clock to talk about it, Amazon decided this was not the perk for it.

The deal’s end drew praise from Sen. Warren. In a statement to The Wall Street Journal, the Massachusetts Democrat said: “I’m glad Amazon isn’t using its brand to encourage students to take on absurdly high-interest private student loans from Wells Fargo.”

Amazon has neither confirmed nor denied the reasons it pulled out of a program it spent a year building with the nation’s second-largest student loan lender — nor has Wells Fargo. But it seems plausible that perhaps it realized that it was easier to sell the textbooks and the bedding than to underwrite the loans that put the student in the dorm room.