College Credit Card Agreements Decline As More Debit Card Deals Emerge
The Consumer Federal Protection Bureau recently reported a nearly 70% decline in college credit card agreements since Congress established regulations for disclosures in 2009. Educational institutions are now forced to be completely transparent when offering credit cards to students, and it seems that transparency has led to a drop in credit card agreements and an increase in debit card and prepaid card offers.
In 2009, there were 1,045 college credit card agreements, with issuers paying $84 million in royalties and bonuses to the schools for their efforts. Since the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act was established that year, the numbers have declined dramatically. In 2013, that number dropped to a mere 336 agreements and $43 million.
But card companies are still finding ways to promote plastic on college campuses. Schools and issuers have now shifted to promoting debit cards and prepaid cards instead because those products do not have the same stringent rules and regulations.
A report from the Government Accountability Office said there were at least 852 educational institutes that had agreements with debit and prepaid card providers as of 2013. This means that there are now more debit card agreements in place than credit card agreements. This is largely due to the regulations set out by the CARD Act, which do not directly impact debit cards. Schools are not yet required by law to disclose their marketing partnerships to students when applying for a debit or prepaid card.
Even though schools are required to be transparent about their agreements with credit card companies, they do not make the information easily accessible. The CFPB reviewed 35 college websites to see if they made their card agreements easy to find online, and found only seven had that information available. 80% did not have their agreements on their websites, nor did they provide information on how to request the agreements.
College-marketed debit cards are not as financially risky as credit cards, so in some ways, this shift is beneficial to students. However, most of these debit and prepaid cards come with fees that students may not realize. Annual fees, ATM fees, transaction fees and deposit fees can all chip away at a student’s limited income. Schools may be inclined to promote high-fee cards to their students because of the incentives they receive from the card providers, even if those products are not the best options for their students.
“Financial institutions are cutting more deals with colleges and universities to market student banking products that require less disclosure,” CFPB Director Richard Cordray said in a statement. “Schools and financial institutions should be up front on their website with students and their families about whether or not the school is being compensated to encourage students to use a specific account or card product.”
The remaining credit card agreements are highly profitable. In many cases, the beneficiaries for the credit card agreements are actually the school’s alumni association, not the college or university. For instance, Penn State Alumni Association earned over $2.8 million in 2013 from an agreement with FIA Card Services. The Alumni Association of the University of Michigan earned $1.9 million from the same organization.
The CARD Act of 2009 paved the way for a better financial start for a number of college students, but a lack of regulations with other financial products may still be putting students at risk. The CFPB will continue to monitor colleges and their interactions with financial institutions to protect students in the future.