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Report: Consumer Protection
The Campus Debit Card Trap
Banks and other financial firms are taking advantage of a variety of opportunities to form partnerships with colleges and universities to produce campus student ID cards and to offer student aid disbursements on debit or prepaid cards. In addition to on-campus services, such as student ID functions offered on the card, some cards offer traditional debit card services linked to bank accounts; other cards provide additional reloadable prepaid card functions. The disbursement of financial aid and university refunds is the most significant partnership identified.
While schools are obtaining revenues and reducing costs by outsourcing certain services, the relationships between schools and financial institutions have raised questions because students end up bearing some costs directly – including per-swipe fees, inactivity fees, overdraft fees and more. Other issues include the effect of aggressive marketing strategies by partnering companies on student choice and weaker consumer protections on certain cards that hold student aid funds.
For example, students are not necessarily making their financial choices freely. When the college has selected a student ID vendor that “incidentally” offers additional banking services on the college-mascot-embellished card, the student’s choices are limited and the student is under the presumption that the college endorses the provider.
Inquiries into the privatization of government benefits through the use of prepaid cards in other sectors, such as state unemployment benefits, have suggested that transparency of terms and fees, as well as contracts, leads to governments making better deals, with fewer fees, for their clients.
This U.S PIRG Education Fund report is an overview of the campus card marketplace and includes a survey of campus cards at the 50 largest public universities, 50 largest community colleges, and 20 largest private universities by campus population. It recommends best practices by colleges and banks and new protections for consumers, and provides tips for students. Greater transparency will help make the market work better.
- U.S. PIRG has identified almost 900 card partnerships between colleges and banks or other financial firms at schools with over 9 million students, or over 2 in 5 (42%) of all students nationwide.
- Industry leading banks and financial firms tout that upwards of 70%-80% of students use their cards after a few years of marketing.
- U.S. PIRG has identified that 32 of the 50 largest public 4-year universities, 26 of the largest 50 community colleges, and 6 of the largest 20 private not-for-profit schools had debit or prepaid card contracts with a bank or a financial firm.
- Of banks, US Bank had the most card agreements, at 52 campuses with over 1.7 million students. Wells Fargo had card agreements at schools with the most students; its contracts were at 43 campuses that have over 2 million students.
- The largest financial firm player, Higher One, has card agreements with 520 campuses that enroll over 4.3 million students.
- Although contracts are hard to obtain, revenues to schools can be substantial. A new contract between Ohio State University and Huntington Bank includes $25 million in payments to the school over 15 years. It also includes an additional $100 million in lending and investment to neighborhoods surrounding campus.
- Fees can be steep and frequent for students using the university-adopted cards, including a variety of per-swipe fees, inactivity fees, overdraft fees, ATM fees and fees to reload prepaid cards.
- At least one fee listed on Higher One’s fee schedule would violate U.S. Department of Education rules if charged, other fees may violate other rules.
- Potentially aggressive marketing tactics can make students captive customers.
- Access to student financial aid funds placed on debit cards can be subject to limited availability of “convenient” fee-free ATMs for student loan withdrawals despite U.S. of Education rules. Students end up paying fees to access their aid.
- Debit card contracts have been controversial at some campuses.
- Some practices, such as outsourcing of student ID functions and pre-loading of disbursement cards, raise privacy issues.
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