The financial industry is clashing with the Obama administration over forthcoming regulations that are intended to protect college students from excessive bank fees.
Still in its early stages, the proposal would extend the Education Department’s regulatory authority to deposit accounts opened under arrangements between universities and financial firms that adopt “campus cards,” critics say.
Banking trade groups, backed by dozens of lawmakers and armed with federal lobbyists, are urging the administration to scale back the proposal, warning it could drive banks off hundreds of campuses, to the detriment of students and industry alike.
“We can identify no authority for DOE’s overreach to regulate deposit accounts that have, at best, only a tangential relationship with those [financial aid] accounts,” the Consumer Bankers Association and American Bankers Association wrote in a letter to Education Secretary Arne DuncanArne DuncanProposed Department of Education rule runs counter to ESSA's restrictions In search of the surest Common Core exit route The opt-out movement and the coddling epidemic MORE.
According to its rule-making agenda, the Education Department is due to issue a formal notice this month outlining the proposal, though an agency spokeswoman told The Hill that the self-imposed deadline would not be met.
Given that the agency is not ready to move forward, she declined to respond to the industry criticism, except to say, “we would only regulate within our statutory authority.”
In order for the rules to take effect by the beginning of the 2015 school year, they must be finalized by Nov. 1.
The issue plays into the president’s agenda of protecting students and providing an affordable college education — issues the administration also hopes will drive Democrats to the polls in November.
According to one lobbyist in contact with the administration, the package of Higher Education Act rules is a high priority for the White House.
The regulatory process, which is typically years long and grueling, might speed up in order to get the rules through in time, he said.
Since the department’s regulations are “high enough on the sensitivity radar, to the degree that they can be, there’s a priority in getting these done,” he added.
The action comes amid mounting concerns from advocacy groups and some lawmakers that financial firms have effectively seized control over federal financial aid disbursement.
The U.S. Public Interest Research Group Education Fund estimates that as many as 9 million students are at risk of “per swipe” fees, inactivity charges and overdraft charges on the campus cards.
Additional reports issued earlier this year by the Department of Education’s Office of Inspector General (OIG) and the Government Accountability Office also raised concerns about the fees, access to ATM machines and a perceived lack of choice in banking options on campuses.
A report by the Federal Deposit Insurance Corp. says that some students said they faced fees totaling anywhere from hundreds of dollars to more than $1,000, “but it is unknown whether such fee amounts are typical,” the GAO said.
All sides agree that the Education Department has the authority to regulate the disbursement of Title IV funding, which includes financial aid returned to students for living costs and other expenses.
Since some of that funding is delivered to students via prepaid or debit cards, those accounts should be subject to the same regulations — including a prohibition on fees for accessing that money, the OIG concluded.
The office’s investigation found that third-party bank services were initially delivering the funds without any charge.
“However, students who chose a servicer’s debit card option could incur fees after the servicer deposited the funds into the student accounts,” the OIG concluded. “In some cases, those fees appeared to be unique or higher than those of the alternative financial service providers.”
The Department of Education held four “negotiated rule-making” sessions that included student rights groups, banks and universities. From February to May, they worked with regulators to try and hash out a rule that would be favorable to all sides.
“The good news about the negotiated rule-making [meetings] is that it brings all the parties together,” said a lobbyist who represents financial institutions and university clients. “The bad news about the negotiated rule-making [meetings] is that it brings all the parties together.”
At the onset, Acting Under Secretary of Education Jamienne Studley made clear that the agency was concerned about the reports of excessive fees in accessing their funds and barriers in locating free ATMs.
“This has prompted us to ask you to consider how regulations should be revised to ensure that students can reasonably, conveniently and reliably access their critical Title IV funds without fees or other costs,” she said.
Much of what was discussed became a nonstarter for each side.
Since negotiated rule-making rules stipulate that all the participants have to come to a unanimous conclusion at the end of the meetings — which didn’t happen — the Department of Education was left to draft a proposal on its own.
Lobbyists are now actively engaged with both Congress and the administration to ensure that the final rules don’t go too far.
“This is like the [Social Security Administration] going, ‘We know how to regulate trucks because your drivers receive Social Security checks,’” said another financial services lobbyist.
Members of Congress have raised concerns about the regulations as well.
Last week, banking groups touted a letter signed by more than two dozen lawmakers, including members from both parties and both chambers.
“We are concerned that an overly broad rule could inadvertently harm the availability and price of financial services to students,” the lawmakers wrote to Duncan. “Such a rule has the potential to place increased financial burdens on colleges and universities, creating pressure on operating and tuition costs.”
Minnesota Sens. Amy Klobuchar (D) and Al Franken (D) followed with a similar missive .
Lobbyists who attended the negotiated rule-making sessions described the distant, but heavy presence of the Consumer Financial Protection Bureau (CFPB) at the meetings, which they say indicates it might be helping the Education Department wade through the regulatory waters.
“None of us want to think negatively right now,” said the lobbyist with both university and financial clients. “We want to wait and see what the department comes up with before making any value judgment.”
This story was updated at on July 24 at 8:20 a.m.