The Consumer Financial Protection Bureau released a report to Congress on Tuesday that outlines a pattern of higher-than-average costs among financial products sponsored by higher education institutions.
The CFPB, led by Director Rohit Chopra, said that many students participating in banking or credit programs offered through their college end up “paying more for financial products than they would on the open market.” In a few cases, that included expensive and increasingly unpopular overdraft fees.
Chopra argued in a press release that the long-term impact of college-backed financial products can be especially significant.
“Many students get their first credit card or deposit account when they enroll in college,” Chopra said, “And banks know that consumers are unlikely to move to a different provider once a product is integrated into their financial life.”
Read the full report here.
A few findings that caught our eye: Financial firms generated $17.3 million in revenue in the 2021-2022 academic year from roughly 650,000 students.
Comparing accounts between different colleges, the CFPB also found that students at Historically Black Colleges and Universities, for-profit colleges and Hispanic-serving institutions “all pay higher-than-average fees per account.” HBCU students with college-sponsored financial accounts paid an average of $30.62 in fees per year, compared to the $26.52 average for all colleges.
“Recent changes in bank overdraft and related practices warrant a reconsideration of whether these fees are consistent with or below current prevailing market rates,” the CFPB wrote in its report.
The CFPB also suggested that policymakers may need to review the existing protections for students around credit card marketing. “Many colleges continue to offer and market financial products in ways, including through online and email advertisements, that may mislead students under certain circumstances,” the report noted.
The report comes a few years into the Biden administration’s broader crackdown on what it calls “junk fees.” A lot of that attention has been directed at food delivery services and live entertainment functions, but the financial services sector hasn’t been spared.
Higher education has very much been the congressional spotlight this month following a disastrous hearing with college presidents on the prevalence of antisemitism on their campus.
We’ll be curious to see if lawmakers on either side of the aisle pick this issue up in the new year. The CFPB and House Republicans have frequently clashed under Biden. But we’ve seen some recent signs of goodwill between the agency and House Financial Services Committee Chair Patrick McHenry (R-N.C.), who has lauded the consumer watchdog’s approach to data privacy reform.
In other news: Dozens of congressional Republicans wrote to Treasury Secretary Janet Yellen and the leadership of the Financial Crimes Enforcement Network Tuesday evening asking the Biden administration to delay the implementation of a key provision of the Corporate Transparency Act of 2019. Championed by former Rep. Carolyn Maloney (D-N.Y.), the CTA was designed in part to close significant money laundering loopholes by having businesses over a certain size report the identity of their “beneficial owners.”
Led by Republicans including McHenry, Rep. Warren Davidson (Ohio), Sens. Rick Scott (Fla.) and Mike Rounds (S.D.), the lawmakers in the letter claim the federal government is “woefully behind in educating small business owners and stakeholders of their new obligations under the CTA that begin in just a few short weeks.”
— Brendan Pedersen