Prepared remarks of Richard Cordray Director of the Consumer Financial Protection Bureau
Student Accounts Press Call
Washington, DC (January 14, 2015) — Thank you for joining us on this call. We know that student loan debt is one of the most significant burdens on young people in this country. Another important issue for young people is how best to manage their money while they are still in school. They may be managing money on their own for the first time, and they can become a focus for financial providers looking for new customers with a long future ahead of them.
As public funding for higher education has been cut, some schools have found new sources of revenue in partnerships with financial institutions. Colleges have made deals to promote credit, debit, or prepaid cards of a particular financial institution in exchange for some of the revenue generated from those accounts. The products are sometimes endorsed with the college logo or linked to a student ID card. In exchange for a cut of the revenue, the financial institutions may get exclusive access to a new group of potential customers.
In recent years, many colleges learned that their financial institution partners were engaged in troubling practices. Credit card issuers were aggressively marketing co-branded products to students in ways Congress deemed inappropriate. And more recently, both the FDIC and the Federal Reserve have identified serious illegal conduct by providers of student debit cards.
To better protect students from aggressive sales practices, the Credit CARD Act of 2009 restricts how financial institutions can market credit cards on college campuses. But the CARD Act does not cover student debit or prepaid cards. So in the past five years, more institutions have turned to marketing these cards instead of credit cards. In fact, forty percent of college students now attend schools that have agreements to provide debit or prepaid cards to their students. Our goal is to help students get the best deal available on these kinds of products.
Responsible colleges are on high alert to ensure that they endorse transparent financial products. We are working to arm them with the information they need to negotiate products that are in the best interests of their students. To make decisions about how best to partner with financial institutions, many colleges use a competitive bidding process. Yet colleges may find it challenging to compare the competing proposals. Without clear information on specific account features and fees, it may be hard to tell which products provide the best deal for students.
To improve this process, the Bureau is proposing a draft “Safe Student Account Scorecard.” The scorecard builds on prior work by the FDIC and is designed to help colleges evaluate the costs and benefits to students of a financial product based on information about its features and how it is marketed. We are seeking input on the scorecard, which highlights four key areas for schools to consider and assess.
First, the proposed scorecard contains a clear description of product features, including fees. Before choosing a financial institution partner, a college should know whether students will be charged a fee for typical features like mobile banking or electronic statements. Those fees would be plainly identified and their amounts plainly noted. The scorecard would also include other information, such as whether the financial institution charges any non-standard fees or how many ATMs are in its network. And if the financial institution does plan to charge any other fees, it would provide a clear explanation of the reasoning behind them.
Second, on the scorecard a financial institution would fully disclose information about its marketing practices, including how it will guarantee that students receive objective and neutral information about financial product choices. For example, the financial institution would provide an explanation as to how it will ensure that the college can approve certain marketing materials that use the college’s brand or logo.
Third, the scorecard can help responsible colleges and universities ensure that their partner financial institutions are being fully transparent about their partnership. Currently, the CARD Act requires financial institutions to make certain information public about account openings and revenues generated through college partnerships to market credit cards. But no such requirement exists for student checking, prepaid, and other products. The scorecard can help to spur greater trust that these arrangements are in the best interests of students.
Fourth, the financial institution would provide the college with an annual summary describing the total fees charged to account holders at that college. The summary would include the number of student account holders the previous year; the average and median fees paid by a student account holder per year; the three most frequently incurred fees per year; and the average and median fees that a student paid for each fee imposed.
This proposed scorecard is still in draft form. We intend to have conversations with students, parents, colleges, financial institutions, and consumer groups about the scorecard and its contents. We want to know how stakeholders think it will affect them or how we could improve it. Colleges have already come to us looking for advice on how to ensure campus products are safe for their students. Many want to structure their partnerships with financial institutions to help students be successful, not bog them down with hidden fees and unwelcome surprises.
So colleges, students, and the public should be able to access this kind of information easily on their own. The scorecard is not designed to be a set of minimum standards – schools would be free to modify it to meet their unique needs. But by increasing transparency this scorecard would represent important progress on safe student accounts, and we look forward to gathering input from the public on how we can better protect students in the future.
We hope to hear from colleges and universities across the country on how we can make the scorecard useful for them. The University of California, one of the largest university systems in America, has embraced our initiative, and we look forward to working with UC and other responsible colleges seeking to help their students avoid products with high fees and surprises.
With American consumers carrying $1.2 trillion in outstanding student debt on their backs and with the cost of college rising, the Consumer Financial Protection Bureau wants to help colleges restore their role as trusted advisers to young people across the country. Today’s initiative is a step in the right direction. Thank you.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.