Students win against banks in U.S. Department of Education Rule

For Immediate Release

[Washington, DC] — Today the U.S Department of Education significantly lowered costs for college students by banning some of the worst fees from bank accounts on campus.

The agency’s new rule will impact over 9 million college students that are exposed to campus-sponsored bank accounts. These debit accounts, often used by students to house their financial aid dollars, are not a better deal for students than what they might find off campus. The fees can be confusing and unavoidable. In 2012, U.S. PIRG wrote a report, The Campus Debit Card Trap, detailing these problems.

U.S. Senator Richard Durbin (D-IL), said the following in response to the rule: Student financial aid should be for the benefit of students, not banks. When colleges and universities partner with financial institutions to issue campus debit cards, students are often targets of aggressive marketing and excessive fees.  Today’s final rule establishes a strong set of reforms that will allow students to focus on their education rather than the fees and fine print of a debit card contract.”

After the release of U.S. PIRG’s report in 2012, Senator Durbin asked for an IG investigation and advocated for reforms to better protect students from abusive campus card practices in letters to the Education Secretary and the higher education community. “I thank U.S. PIRG for working to expose the problems that can occur with these bank deals which have been formed with colleges and universities that represent nine million American students.”

Each year, billions of dollars of financial aid flows to students on campus. Banks want a piece of the action. Students are unfairly targeted by banks, and the Department of Education rule levels the playing field,” said Christine Lindstrom, U.S. PIRG Higher Education Program Director.

Students typically take up these accounts as a storehouse for their federal financial aid dollars, but they can end up paying hundreds of dollars in fees each year. Banks behind the fees have been the subject of investigation at the Federal Deposit Insurance Corporation and the Federal Reserve, as well as the target of a major class-action lawsuit recently settled in Connecticut.

The new rule prohibits banks from charging overdraft fees to students, who presumably are using a debit account rather than using credit and spending in the red. Overdraft fees can be as high as $37, and banks will reorder transactions to collect the most overdraft fees possible from students.

The rule also bans inactivity fees and the niggly point-of-sale fee, a $.50 per-transaction fee which is not commonly charged outside the campus marketplace. The new rule will result in over 2 million students realizing savings beginning next July 2016.

In addition, the rule bans aggressive marketing tactics like pre-mailing debit cards to students before they have opted into the account. It also ensures that the banking contract is publicly available on campus, and turned over to the US Department of Education annually.

“While the new rule allows for banks to continue sharing revenue with colleges as part of the deal, and for banks to adopt the campus logo on their banking products, it still manages to protect students. The contract transparency provisions it contains are essential to ensure that students do not get taken advantage of in these banking deals,” U.S. PIRG’s Lindstrom said.

“Unfortunately, the rule does allow certain bank accounts offered on campus to continue to charge high overdrafts and other fees simply because the cards are marketed outside of the financial aid process. Given that between 40 and 80 percent of the student community at schools with campus-sponsored bank accounts end up one, it is only logical that financial aid dollars will end up in these accounts.

“Overall, most students will save money in these accounts beginning in July, so this is a big victory for students.”