Thank you Chairman Johnson, Ranking Member Crapo, and other distinguished Senators for giving me this opportunity to speak. My name is
The topic of today's hearing is broad, so I will focus my remarks on issues that U.S. PIRG has been actively tracking and promoting related to the role of financial institutions on campus. Our top priority over the past two years has been the debit cards and bank accounts that millions of students are exposed to on campus each term. I will also briefly touch on the private and institutional loans that students may take up to pay for college.
Since 2007, we've worked to ensure that students are protected from the tricks and traps layered into high-cost products like campus credit cards, private student loans, and campus bank accounts and debit cards. Right now, students are being hit with high fees that are hard to avoid as they try to access their federal aid refunds through campus-sponsored bank accounts and pre-paid debit cards. The lowest income students, who receive the most in financial aid, are the prime targets for these products and are the hardest hit. Paying extra fees to access financial aid through a campus-sponsored account, combined with a high student debt burden and other pressing financial concerns such as child care and transportation costs, can overwhelm low income students and cause them to withdraw from post-secondary programs.
We found in our 2012 report, The Campus Debit Card Trap, that two in five college students in the country are exposed to debit cards on campus that may drive up their costs. Students at some campuses are charged steep and unusual fees to get to their federal financial aid, including PIN transaction fees at the point of sale and overdraft fees at
Still, industry leading banks and financial firms can see 40 to 75 percent of students on a campus using the campus based products after a few years of marketing. nii How do they do it? How do they get such high uptake into accounts that are not any better, and in many cases, worse, than what they would get in accounts off campus? How are they profiting?
First, banks and financial firms behind these products often rely on revenue-sharing agreements with campus administrations to gain dominant access to students on campus. Contracts disclosed to the
Second, they use push marketing and other strategies to steer students into opening up these new accounts over using their existing accounts.
Once the student logs on-line to opt in or opt out,
At another college, bank representatives actually set up tables right outside the student ID office, and pitch students as they apply for their IDs to sign up for a bank account right then and there. These bank accounts can be accessed right through the student ID card. Students can get freebies like bags and tee shirts for signing up. niv
Finally, the fees can be high, and unusual. Fees on university-sponsored cards include a variety of PIN swipe fees, inactivity fees, overdraft fees, ATM fees and fees to reload prepaid cards. These fees can be hard to avoid - for example, if a merchant only accepts PIN debit, or there is no fee-free ATM available. Additionally, if these fees are being paid out of federal loan funds, then students are paying interest on these fees for at least a decade.
All campus bank accounts and prepaid card services charge overdrafts. Overdraft coverage is a form of credit, since the financial institution covers the consumer's shortfall and subsequently is repaid the amount extended plus a fee. Some banks engage in the abusive practice of purposefully "reordering" transactions to maximize overdraft fees. In 2012, the
One argument that is being made in defense of these campus banking products is that too many low income students are not able to acquire a bank account other than on campus, and by controlling their access to campus bank accounts, their access to other beneficial products available in the mainstream financial marketplace is blocked. The
There is a steady drumbeat of evidence that campus-sponsored accounts are a bad deal for students. In the past two years, at the request of Senator
While these actions are encouraging, I urge you to promote solutions from this chamber as well. Our elected leaders in the
I urge you to consider legislation that bans revenue-sharing agreements between colleges and banks or financial firms crafted specifically to offer bank accounts and related banking products to students on campus. The conflict of interest inherent in these agreements is problematic for the student consumer. We've seen this conflict of interest before in the campus marketplace around private student loans and campus credit cards. In fact, both
Private student loans are another financial product targeting students. While these loans only accounted for seven percent of all educational loans made last year, they are very risky. Private student loans, like credit cards, generally offer variable interest rates that are higher for those borrowers with the least means. Repayment options are also severely limited. While the market for private student loans shrunk due to the financial crisis, it is expanding once again. nxiii According to the
In a similar vein, institutional private loans deserve scrutiny. A Senate HELP committee investigation found that half a million students leave their for-profit college without a degree, shouldering high debt levels that are more challenging to manage without credentials. nxiv Before the financial crisis, for-profit colleges played the role of financial institution, offering institutional private loans to student recruits on top of their federal loans. While many of these institutional loan programs have been discontinued, borrowers who are in repayment now carrying these loans are dealing with high costs and little recourse. We urge you to consider offering restitution for these borrowers who are ensnared in these bad loan deals.
ni Report, The Campus Debit Card Trap,
nii Issue brief, Perspectives on Financial Products Marketed to College Students,
niii News story,
niv News story, Bank Pays
nv Press release, FDIC Announces Settlements With
nvi Issue brief, Perspectives on Financial Products Marketed to College Students,
nvii Press release, CFPB Launches Inquiry On Campus Financial Products,
nviii Report, Third-Party Servicer Use of Debit Cards to
nix Report, College Debit Cards: Actions Needed to Address ATM Access, Student Choice, and Transparency, General Accounting Office,
nx Press release, Higher One Agrees to Settle Class Action Regarding OneAccount Fees, Tycko and Zavareei,
nxi Press release, FDIC Announces Settlements With
nxii Press Release,
nxiii Report, Private Loans, Public Complaints: The
nxiv Report, For Profit Higher Education: The Failure to Safeguard the
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