The Consumer Financial Protection Bureau (CFPB or Bureau) released its 14th annual report to Congress in fulfillment of its requirements under the Credit Card Accountability Responsibility and Disclosure (CARD) Act. For the report, the CFPB reviewed information available on college websites on the financial products offered directly to students or jointly marketed to students with third-party providers. According to the CFPB, its research showed that college-sponsored financial products have higher fees and less favorable terms and conditions compared to typical market products.

Many colleges offer co-branded financial products to students and alumni, such as deposit accounts and credit cards. According to the CFPB, these arrangements can be lucrative for schools as financial institutions pay flat-fee marketing deals and per-signup returns and students may be likely to accept their school’s recommendation of a bank account or credit card. However, the CFPB’s research showed that colleges’ financial products may charge students higher or atypical fees. The report also revealed that accountholders at Historically Black Colleges and Universities (HBCUs), for-profit colleges, and Hispanic-servicing institutions (HSIs) pay higher-than-average fees. Lastly, some financial institutions impose additional fees when a student graduates or reaches a certain age, relying on “sunset” clauses so that a product marketed as free may end up being charged monthly maintenance fees or overdraft and nonsufficient funds (NSF) fees that students did not anticipate.

Key findings of the report include:

  • During the 2021-2022 school year, financial institutions generated over $17.3 million in revenue from over 650,000 student bank accounts.
  • Financial institutions generated over $15.7 million in fees per year from these accounts, with accountholders paying an annual average of $26.50 in fees. Notably, the average amount of fees charged to accountholders at HBCUs, for-profit colleges, and HSIs were $30.62, $29.77, and $28.22, respectively.
  • Some financial institutions charge students fees, such as overdraft fees, even though some large financial institutions have eliminated these fees entirely and others offer one or more checking account products that do not carry overdraft fees.
  • In 2022, credit card issuers paid over $19.6 million to colleges for partnerships.
  • Student IDs are often used as general-purpose debit or prepaid cards, allowing students to make payments and receive federal financial aid funds. However, the CFPB highlighted potential risks associated with these dual-purpose IDs.
    • Some colleges do not allow cash withdrawals or refunds from active accounts and may revoke access if a student is expelled or subject to disciplinary action.
    • Colleges may charge processing fees for refunds or require that university debts are satisfied before a student can receive a refund.
    • Misleading marketing could lead students to believe that it is mandatory to use student ID cards to access their financial aid disbursements.
    • Colleges may partner with nearby merchants to provide discounts, rewards, or credit if students pay with their dual-purpose student ID cards, which could influence student spending habits and expose students to potential costs without full information.

Over the past year and a half, the CFPB has been intensely focused on colleges’ financial arrangements with their students. As discussed here, on September 29, 2022, the CFPB released a special edition of its Supervisory Highlights focusing on student loan servicing, particularly loans made by schools themselves. The CFPB simultaneously announced that it was updating its examination manual and would be conducting examinations of schools that make their own loans to students. On September 14, 2023, the CFPB released a report, discussed here, on Tuition Payment Plans in Higher Education showing that enrollment fees, late fees, and returned payment fees can create a high cost of credit. Because of the CFPB’s continued focus on schools, they and their service providers would be well advised to prepare for the scrutiny by assessing their products, services, and operations for compliance with applicable federal and state laws and regulations.

Our Take:

This is the latest attack in the CFPB’s two-year war on so-called “junk fees.” The Bureau’s targeting of low-cost deposit products (yielding roughly $2 per month per account in revenue for banks) is further evidence that it is focused on controlling prices rather than its congressionally-mandated mission of ensuring that financial products comply with the law.

Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Taylor Gess Taylor Gess

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts…

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts, rental-purchase transactions, and small business loans.

Photo of Melanie Griffith Melanie Griffith

Melanie is an associate in the firm’s Consumer Financial Services Practice Group. Prior to joining the firm, she clerked for Chief Justice Lorie S. Gildea on the Minnesota Supreme Court and was a civil division law clerk in the Minneapolis City Attorney’s Office.

Melanie is an associate in the firm’s Consumer Financial Services Practice Group. Prior to joining the firm, she clerked for Chief Justice Lorie S. Gildea on the Minnesota Supreme Court and was a civil division law clerk in the Minneapolis City Attorney’s Office. She gained industry experience working at a credit union and a community bank before attending law school.

Photo of James Kim James Kim

As a former senior enforcement attorney with the CFPB, James provides the industry knowledge and expertise that fintechs and financial institutions require when launching new products or facing regulatory scrutiny.

Photo of Stefanie Jackman Stefanie Jackman

Stefanie takes a holistic approach to working with clients both through compliance counseling and assessment relating to consumer products and services, as well as serving as a zealous advocate in government inquiries, investigations, and consumer litigation.

Photo of Caleb Rosenberg Caleb Rosenberg

Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small…

Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.