Education Department ramps up oversight of college banking deals following critical CFPB report

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Dive Brief:

  • Colleges that partner with financial service providers like banks appear to be promoting accounts to students that are more expensive than other options available in the marketplace, the Consumer Financial Protection Bureau said in an annual report to Congress on Thursday.
  • Institutions are also likely failing to meet U.S. Department of Education requirements about sharing information on student account options and disclosing their deals with companies, the CFPB found.
  • The U.S. Department of Education issued guidance Thursday making clear that colleges are responsible for seeing that campus financial products uphold students’ best interest. That includes reviewing whether financial account fees are consistent with or below market rates. The department said it will ramp up oversight, in part by tracking new data and adding staff.

Dive Insight:

Colleges frequently make deals with banks and other financial service providers that want to sign students up for accounts. These arrangements have drawn scrutiny from watchdogs and policymakers for years amid concerns they incentivize colleges to steer students toward costly financial services they don’t need.

Only a handful of financial services providers account for a large share of the arrangements. Just one, BankMobile, was responsible for nearly 70% of accounts offered under these deals, the CFPB found.

BankMobile, or BM Technologies, is a publicly traded digital banking company. A BM Technologies spokesperson emailed a statement calling the company “one of the first movers” eliminating common account fees. The company wants to provide affordable and transparent banking, the statement said.

“BM Technologies looks forward to working with the CFPB and the United States Department of Education on its refund processes, continued compliance, and financial product offerings,” it said.

These deals can in some cases bring in millions of dollars in revenue for colleges. Arizona State University was among institutions receiving the largest payments from a financial partner. MidFirst Bank paid it $2.8 million in 2020-21, the CFPB found. An estimated 46% of Arizona State undergraduates had accounts at the bank.

Arizona State is meeting disclosure requirements, a spokesperson said in an email, pointing to a university website.

The university’s contract with MidFirst is expiring, and the services it covers are out to bid.

“We are currently in negotiations with a financial institution for this business after completing an RFP process and have been very clear throughout that process on our expectations in relation to benefits to students as well as DOE requirements,” the spokesperson said. “The 11-year partnership with Oklahoma City-based MidFirst Bank was entered with the best interests of students in mind.”

Arizona State also pointed to the current MidFirst offerings allowing students to use different bank ATMs without incurring fees and said it does not pressure students.

Some contracts include revenue-share agreements or incentives that kick in for colleges when a certain number of accounts open in a year, the CFPB report said. In some cases, banks provide bonuses per account opened.

The regulator reached its conclusions after looking at data on 11 account providers — banks, credit unions and other financial service providers that don’t qualify as banks. That spanned more than 650,000 student accounts at 462 colleges in 2020-21.

The report sheds light on the fees financial institutions sometimes impose on accounts opened under college partnerships. BankMobile charges account holders monthly fees if their accounts receive less than $300 in qualifying deposits, the report said. But financial aid disbursements don’t count as qualifying deposits.

Financial aid disbursements can make up most of students’ deposits in a bank account, the CFPB said.

“While colleges have substantial bargaining power to obtain superior terms and pricing for their students, we find that many college-sponsored financial products cost students more than accounts that are readily available on the open market,” the CFPB’s director, Rohit Chopra, said in a statement. “Today’s report suggests that there is more work to do to ensure that students are not steered into school-endorsed products with junk fees.”

The watchdog also found cases when students were told financial aid payments might be less timely if they didn’t choose a college-sponsored account — even though Education Department regulations say students can’t be nudged to select products under threat of financial aid delays.

Almost 30% of accounts the CFPB sampled were covered by deals in which financial services providers paid their partner colleges. Federal regulations generally require higher education institutions to post such agreements on their websites, share details about compensation flowing between a college and banking entity, and provide information on the average costs students pay.

But hundreds of colleges didn’t seem to have posted those details in the “public and conspicuous manner required,” according to the CFPB.

The Education Department sent colleges a letter Thursday highlighting regulatory requirements they must meet. It also pledged to improve processes colleges use to report financial arrangements to the government, increase oversight and use the CFPB to identify which practices are in students’ best financial interest.

“We are aware of certain practices that may pose risks or excessive costs to students,” said the letter, signed by Annmarie Weisman, a deputy assistant secretary in the Office of Postsecondary Education. “Institutions have a responsibility to protect their students when it comes to financial products.”

Editor’s note: This brief has been updated with comment from BM Technologies and Arizona State University.

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