NACUBO Responds to CFPB Student Account Proposal

May 2015

By Liz Clark

On March 30, NACUBO submitted comments to the Consumer Financial Protection Bureau (CFPB) regarding its proposed Safe Student Account Scorecard, a template for colleges and universities to use when issuing requests for proposals (RFPs), which include provision of financial accounts for students. In its letter, NACUBO expressed a number of concerns and offered suggestions for improvement.

Based on a template developed by the Federal Deposit Insurance Corp. for banks offering accounts targeted to low- and moderate-income consumers, CFPB’s Safe Student Account Scorecard is intended as a tool to help institutions set parameters for student financial accounts sponsored by—or otherwise connected to—the institution, and to compare offerings. Its use would be voluntary.

The template involves 10 questions requiring a response from financial institutions (bidders). The questions cover fees and features of the student bank account, additional services available, marketing practices, and transparency about the contract terms.

The tool can be included in an institution’s request for proposal when seeking a partner to offer bank accounts to its students.

In some of the questions, CFPB seemed to suggest that colleges impose certain requirements on financial institution partners. These requirements resemble consumer transparency and marketing proposals made by consumer representatives and others to earlier CFPB proposals, and during recent Department of Education meetings on its cash management rules.

Debit Card Best Practices

In its comment letter, NACUBO referenced its 2012 best practices guidance, Safeguarding Student Finances: Guidance for Campuses Offering Student Debit Card Options (see sidebar "Further Guidance for Student Finances"). The document encourages colleges and universities to place the well-being of students first and use competitive bidding processes when selecting financial partners.

Additional comments address marketing practices, ATM access, contract transparency requirements, and information and tools to assist institutions in comparing proposals from banks.

NACUBO’s letter on the proposed scorecard concludes, "We believe that—done right—an account scorecard included as part of an RFP could be beneficial to higher education institutions, banks, and ultimately students. If colleges and universities use a standard format to gather information about features and fees for student accounts from financial institutions, it makes it easier for banks to provide that information. Additionally, schools lacking resources to develop their own RFPs will find the model account scorecard helpful as they contemplate entering into an agreement with a financial institution."

ED to Propose New Cash Management Rules

Student banking and debit card arrangements were at the forefront during the 2014 negotiated rulemaking committee meetings, convened by the Department of Education to review its cash management regulations, state authorization for distance education and foreign campuses of domestic institutions, and several other topics. Shortly before the rulemaking committee convened, the Government Accountability Office had released a detailed report on college debit cards, and CFPB held a forum on relationships between financial institutions and colleges and universities.

During the rulemaking discussion, NACUBO representatives and other members of the committee defended the current 14-day limit for disbursing Title IV credit balances, explaining that institutions use that time to ensure student eligibility and the accuracy of the amounts. However, most of the discussion on these issues centered on the following:

Relationships between banks and institutions (including those not tied to student aid).
Use of third-party servicers and various types of debit card arrangements to disburse aid to students.
Transparency about such arrangements, ensuring student choice.
Access to ATMs.

Because the negotiated rulemaking panel did not come to consensus last year on proposed rules, the department is free to propose regulations as it wishes. We expect to see ED’s proposed cash management rules within the next several weeks.

RESOURCE LINK For further information, visit the Debit Cards and Campus Banking Products page at www.nacubo.org.

NACUBO CONTACT Bryan Dickson, policy analyst, 202.861.2505; Anne Gross, vice president, regulatory affairs, 202.861.2544

Further Guidance for Student Finances

In its 2012 guidance, NACUBO recommends the following best practices to colleges and universities offering student debit card options.

Keep students first. In ongoing efforts to hold tuition and administrative expenses down, college administrators seek cost savings in a number of ways, including automating manual processes, contracting with private operators for support functions, and establishing new revenue streams. Institutions should put students’ interests at the forefront, making business decisions to enhance services available to students—and not do so at their expense.
Encourage students to use financial institutions. Many students enrolling for the first time at a college or university have not yet established personal checking or savings accounts. However, those with bank accounts can typically better manage their money, do not have to carry large amounts of cash, and can benefit from the convenience of debit cards and transaction records. Additionally, most bank accounts are insured and offer fraud protection. Therefore, institutions should encourage students to use financial institutions.
Offer choices. Students have the right to choose their banking relationships, and this should be unambiguous in campus communications. These communications should also clearly state that students who already have accounts can use them. Some students may not have or be eligible for a traditional bank account, so may prefer a campus-affiliated debit card option. Institutions should ensure that students have sufficient information available to allow them to be informed consumers.
Encourage electronic refunds. Electronic transactions have become the norm in all aspects of consumer finance—from government payments to retail transactions—because they are faster, safer, less expensive, and more convenient. Schools should encourage students to receive their refunds electronically.
Utilize a competitive process and limit exclusivity. The financial services arena is a fast-changing world for both the industry and consumers, with new options regularly emerging in the marketplace. Students and institutions should not be limited by outmoded choices. When seeking a vendor for financial services, institutions should use a competitive selection or bidding process. Institutions should also limit contracts to no more than five years.
Engage students in the vendor selection process. Students are directly affected by campus contracts with financial institutions for student services, but are not always part of the decision-making process when a vendor is selected. Institutions should encourage student involvement in the process, which can include focus groups, representation on a selection committee, or consultation through student government.
Comply with federal and state regulations. Colleges and universities take seriously their compliance with the U.S. Department of Education’s regulatory and administrative requirements for the Title IV federal student aid programs. Institutions should take steps to ensure that administrators, staff, and vendors comply with all applicable federal and state regulations.
Negotiate low or no-fee options and convenient services for students. Just as colleges and universities strive to provide high-quality academic experiences for their students, they must ensure that school-sanctioned services are also good consumer values. For example, school-endorsed financial institutions should provide adequate ATM access on campus or ensure that banking facilities are readily accessible on or near campus, offer low-cost student account options, educate students to be informed consumers of financial services, and publish clear and transparent fee schedules.
Examples of fees and services institutions should pay particular attention to include:
- Account fees—setup, requesting a card, monthly service, minimum balance.
- Spend fees—making a credit card or debit transaction at a point of sale.
- Cash fees—ATM fees, available surcharge-free networks, cash back at point of sale.
- Deposit fees—depositing money by ATM, ACH, direct deposit, teller.
- Help fees and services—online help, voice help, live agent and/or teller options, balance inquiry.
- Caution fees—inactivity, replacement, overdraft.
- Bill payment options and fees—online pay anyone.
Avoid unscrupulous marketing. Institutions should use great discretion when agreeing to a communication plan to ensure that students are presented with a fair explanation of services and not with misleading, biased, or aggressive marketing schemes.
Make contracts transparent. Institutions should publicly disclose the terms of any agreements with third parties issuing debit cards to students.