The Consumer Financial Protection Bureau (CFPB) has identified that numerous college-sponsored financial products impose high and unusual fees. The annual student banking report discovered that students encounter steep costs and unfavorable terms on college-endorsed credit cards and a variety of financial products.
"Many students get their first credit card or deposit account when they enroll in college, and banks know that consumers are unlikely to move to a different provider once a product is integrated into their financial life," stated CFPB Director Rohit Chopra. "Schools should take a hard look at the fees and terms of the products they pitch to their students and alumni."
According to a press release by the CFPB, deals offered to students on financial products present worse terms and conditions compared to typical market products. The report revealed an overwhelming number of college-sponsored deposit accounts with fees significantly above prevailing market rates. Institutions are mandated to adhere to rules under the Department of Education designed to safeguard student interests. Chopra was referring specifically to colleges that sponsor financial products such as deposit accounts, credit cards, and prepaid cards for their alumni and students. This practice reduces competitive pressure on financial institutions, as students are more likely to accept the school's recommendation rather than seeking better deals.
The CFPB's College Banking and Credit Card Agreements report in 2022 underscored high fees levied on student banking products endorsed by colleges. It suggested that financial institutions and colleges may be misleading students into costly financial products. The report found that fees paid by students often vary by institution type, with Historically Black Colleges and Universities, for-profit colleges, and Hispanic-serving institutions paying higher-than-average fees per account. Students also face unexpected fees upon graduation, as institutions impose additional charges once a student graduates or reaches a certain age. The CFPB pledged continued scrutiny of these practices in order to identify potential violations of federal consumer financial protection law.
