Overdrafts continue to hit students hard on campus

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Chris Lindstrom

U.S. PIRG

Today, the Consumer Financial Protection Bureau (CFPB) released a report shining a spotlight on contracts between banks and colleges to promote debit cards on campus.  Students continue to get hit hard with overdraft fees attached to their campus bank accounts.

“Overdraft fees sneak up on student consumers who are managing their money for the first time,” remarked Christine Lindstrom, Higher Education Program Director for the U.S. Public Interest Research Group.   “Colleges must stop banks from charging overdraft fees on bank accounts offered to students on campus.” 

According to the report, nearly one in ten consumers in the population with student accounts incurred 10 or more  overdrafts per year, paying, on average, $196 in overdraft fees alone.

Until recently, students were exposed to bank accounts on campus that carried high fees and unusual fees not typically found off-campus.   The U.S. Department of Education (ED) set a strong new rule for the marketing of sale of bank accounts on campus, including banning per-swipe fees and ensuring free ATM withdrawals once a student’s aid dollars entered the account.  The rule eliminated overdraft fees from bank accounts offered as part of the college’s financial aid disbursement process.   However, fees remain on bank accounts on campus that are not offered as part of the financial aid process, but are marketed through a link to the student ID card.

The report put out by the CFPB is the first analysis done of the contracts since they have been collected by the Education Department as part of the new rule.    CFPB conducts a biannual analysis of contracts between banks and campuses as part of credit card reforms put in place by Congress in 2009.     Credit card marketing and sales on campus declined as a result of the reforms, as banks turned to marketing bank accounts.   Within four years of a new contract to push bank accounts on campus, banks expected between forty and eighty percent of the student population to buy the accounts.   

In a practice eliminated in 2009, banks induced financial aid offices on campus to push private student loan products on to students and families that carried higher rates and worse terms than what they could find off campus.

 The contracts analyzed in the CFPB report shows that many colleges are not intervening in their banking contracts as they should, so students are paying more in overdraft and ATM fees.   But one college, Stetson University, has negotiated an account offered on campus that carries no overdrafts at all. 

 Lindstrom concluded that “on campus, students are a captive audience for the banks, so colleges as the gatekeepers must act in their interest.”   

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U.S. PIRG, the U.S. Public Interest Research Group, is a federation of non-profit, non-partisan public interest advocacy organizations that takes on powerful interests on behalf of its members, working to win concrete results for our health and well-being. On the web:   www.uspirg.org

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