A Department of Education proposal to regulate which bank accounts can be marketed to students has members of the financial industry crying foul.
The proposed rule, released Friday, aims to protect students receiving financial aid from bank accounts with high user and overdraft fees, but the Consumer Bankers Association said the banking industry is already heavily supervised by a number of regulators that specialize in financial products.
“It is hard to believe Congress ever intended the Department of Education to wield authority over financial services,” CBA President and CEO Richard Hunt said in a statement.
Because more and more colleges are entering into agreements with banks and financial institutions to outsource their financial aid disbursements — the leftover student loan and grant money that’s owed to the students once the school’s tuition and fees are paid — the Education Department said it believes regulatory action is needed.
In return for monetary benefits, schools are allowing financial institutions to market bank accounts and prepaid cards to their students.
The Center for Responsible Lending said students are drawn into opening these accounts, which often carry high user and overdraft fees, by promises of immediate access to their money.
“Students are an incredibly lucrative body of consumers for banks to be accessing,” said Maura Dundon, the CRL’s senior policy counsel. “Over half of all students come to campus without their own account yet and we know bank accounts are sticky — once you get someone in your account you will likely have them for a long time as a customer.”
The new rules would keep schools from allowing accounts that charge overdraft and point of sale fees to be marketed to students and would prohibit schools from making refund payments to these accounts faster than pre-existing accounts.
Colleges and universities would also be required to provide a list of account options that a student may choose from to receive credit balance funds, and schools would be prohibited from requiring students or parents to open accounts in order to receive their student aid refunds.
Hunt said the rule will ultimately cost students more in the long run.
“Though today’s proposal seems to have improved from its original form, what is being veiled as pro-consumer reform is far from it and based on little to no actual data,” he said.
“The burdensome cost of new regulatory requirements on schools will ultimately be paid for by students, increasing the cost of college at a time when the government should be trying to do the opposite.”