The Biden administration is aiming to make bank accounts marketed to college students more affordable. The Education Department has recently released proposed language that seeks to restrict certain fees that banks can charge on accounts offered to students through their schools. This proposal comes as a response to concerns raised by the Consumer Financial Protection Bureau, advocates, and others regarding the potential risks associated with partnerships between schools and financial institutions.
Colleges often collaborate with financial institutions to provide students with specific products. Critics argue that these arrangements allow financial institutions to exploit a vulnerable audience with limited financial management experience, while also having the opportunity to gain life-long customers.
According to the CFPB, during the 2021-2022 academic year, financial institutions earned over $17.3 million in revenue from 650,000 bank accounts offered through these partnerships.
Mike Pierce, the executive director of the Student Borrower Protection Center, states: "What you see here is schools pushing financial products on students that are a worse deal than students can get in the open market. Students are paying tens of millions of dollars in junk fees to use these accounts that the schools are marketing."
The Education Department's release of proposed language indicates its disapproval of certain fees associated with these accounts and showcases a new vision for the necessary safeguards to be implemented.
An End to Insufficient-Funds Fees
The regulatory text primarily focuses on bank accounts presented by schools to students for depositing their financial-aid refunds or excess federal grants and student loans. Typically, students use this money to cover rent, food, and other living expenses.
The proposed changes seek to ban insufficient-funds fees and sunset fees—fees that come into effect after a student graduates or reaches a certain age—on these accounts. Additionally, financial institutions would be prohibited from differentiating between financial-aid funding deposited in the accounts and other forms of deposits when assessing fees.
The student banking market may see significant changes as the U.S. Department of Education moves to eliminate specific fees and enhance protections for students. One major player in the industry, BMTX, charges a $2.99 monthly fee on its student checking account if the account does not receive at least $300 in recurring deposits, excluding federal financial aid funds.
The department's aim is to prevent school vendors from profiting excessively from federal student loans and grants. An Obama-era rule was introduced after allegations were made against the market's dominant player, who was accused of imposing high and unusual fees on students.
As part of the proposed changes, the department is also outlining the types of accounts it deems most suitable for students. In order to comply with the law, bank accounts must align with the Consumer Financial Protection Bureau's (CFPB) model for a safe student account, which prohibits overdraft fees, fees for direct deposit, bill pay, and insufficient funds.
It is important to note that these proposals are still undergoing review and are subject to input from external stakeholders before they become official regulations. However, they signal the department's commitment to making campus bank accounts safer for students, addressing concerns expressed by advocates.
The move to eliminate so-called "junk fees" aligns with President Biden's focus on protecting consumers from unfair financial practices. Addressing the issue of excessive fees in the campus banking market is seen as a step towards ensuring a transparent and trustworthy financial environment for students.
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