A growing number of colleges and universities have entered into agreements with financial firms to provide debit and prepaid card services for students in exchange for monetary benefits to schools.
The agency’s new rule will impact more than nine million college students that are exposed to campus-sponsored bank accounts.
“Student financial aid should be for the benefit of students, not banks,” said U.S. Sen. Richard Durbin, D-Ill. “When colleges and universities partner with financial institutions to issue campus debit cards, students are often targets of aggressive marketing and excessive fees.”
Durbin said the new 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.
Students usually get these accounts 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 by the Federal Deposit Insurance Corporation and the Federal Reserve, as well as the target of a major class-action lawsuit recently settled in Connecticut, said Christine Lindstrom, higher education program director for U.S. PIRG.
The new rule prohibits banks from charging overdraft fees to students who are using a debit account. Overdraft fees can be as high as $37, and banks often change the order of transactions to collect the most overdraft fees possible from students.
The rule also bans inactivity fees and a point-of-sale fee, a 50 cent per-transaction fee which isn’t commonly charged outside the campus marketplace. The new rule affects more two million students and will go into effect July 2016.
In addition, the rule bans aggressive marketing tactics such as 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 submitted to the department 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,” Lindstrom said. “The contract transparency provisions it contains are essential to ensure that students do not get taken advantage of in these banking deals.”
However, the rule does allow certain bank accounts offered on campus to continue to charge high overdraft and other fees because the cards are marketed outside of the financial aid process, she said.