Living with credit

Two new bills take aim at student debit card industry

Kelly Dilworth

Once again, U.S. colleges and universities are taking heat from federal lawmakers for peddling hazardous plastic on campus. But this time, lawmakers are zeroing in on campus-issued debit cards, rather than credit cards.

Late last month, Democratic lawmakers in both the House and Senate introduced two new companion bills that seek to limit the role universities can play in steering college students toward specific financial products — such as co-branded college debit cards.


“Many of today’s college students are being strong-armed into using financial products that are endorsed by their university,” said Rep. George Miller, D-Calif., in a statement. “These products often carry unnecessarily high fees that chip away at students’ federal grants and loans, which should be helping pay for classes, not lining the pockets of banks.”

“We stopped colleges from selling out their students to credit card and student loan companies five years ago,” he added. “And now banks are at it again with checking accounts and debit cards.”

The two bills come less than four months after the Government Accountability Office (GAO) published a critical report on the campus card industry titled “College Debit Cards: Actions Needed to Address ATM Access, Student Choice and Transparency.”

In its February 2014 report, the office said that as many as 852 colleges and universities across the country have contracted with financial services providers to distribute debit and prepaid cards to college students. And in some of those cases, the colleges are being paid a direct percentage of the earnings from each student that signs up for a campus card — and they’re not disclosing that information to students.

“This report reveals that many schools are providing a startling lack of transparency to students and their families when it comes to the agreements they have with financial institutions,” said Sen. Dick Durbin of Illinois in a Feb. 13 press release about the study. “These agreements look far too similar to the student loan and credit card abuses we cracked down on in the past.” The Credit CARD Act of 2009, for example, sharply curtailed the marketing of credit cards on campus and forced disclosure of universities’ financial agreements with companies that issued co-branded cards.

Dubious agreements
Warning flags have been waving for years around campus debit cards, such as the co-branded cards that also function as a college ID card.

Some of the cards offered on college campuses have come under fire for the excessive fees they charge to students. For example, the financial services provider Higher One charges students 50 cents per transaction any time they use their PIN number instead of their signature.

Other card programs have also been criticized for their unsavory relationships with colleges that use the cards to distribute financial aid. For example, according to the GAO report, most campus debit cards also double as financial aid dispensers. Students eager to get their financial aid as quickly as possible can sign up for the cards and have their aid deposited directly into their accounts. But students who opt out of the campus-provided debit cards often have to wait significantly longer.

Because the debit card issuers are the ones that process the financial aid distributions, universities often save a bundle on processing costs when they partner with outside firms. In addition, some universities get extra money from the campus card providers in exchange for the lucrative partnership.

For example, according to records I pulled via a public records request back in 2012, Wells Fargo paid the University of Nebraska at Lincoln a $250,000 bonus when the university signed up for its campus card program. It also agreed to pay an additional $300,000 per year for every year the program is active and an extra $15 for every checking account opened by a student.

A legal remedy?
That’s exactly the kind of financial partnership that lawmakers want to curb. According to a press release announcing the dual legislation, revenue sharing, kickbacks and questionable gifts would be banned by the legislation. So colleges and universities would no longer have a financial incentive to steer students toward certain products.

In addition, colleges would have to publicly disclose any financial agreements they have with financial institutions. And they would be barred from postponing the dispersal of financial aid to students who don’t participate in the campus card program.

The legislation has won praise from consumer advocates. But it could be awhile before it actually gets anywhere. According to, the House version of the bill, dubbed the “Curbing Abusive Marketing Practices with University Student Debit Cards Act” has just a 2 percent chance of getting passed in the next legislative session. Meanwhile, the Senate version, titled “Protecting Aid for Students Act for 2014” is also unlikely to get far any time soon.

That said, the combination of intense legislative pressure (or at least threats) from Congress and the continued scrutiny from the CFPB could prompt some colleges to take a second look at their current campus card programs long before they’re forced to do it by the feds.

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