The U.S. Department of Education announced new regulations Tuesday banning overdraft and transaction swipe fees on student debit and prepaid card accounts. The rules also prohibit schools from requiring students to open an account with a specific institution in order to receive student aid funds.
According to the DOE, the regulations were part of the Obama Administration's goal to protect students in the rapidly expanding college debit and prepaid card marketplace. The regulations also add a new income-based repayment plan so more borrowers can limit the amount of their payments to 10% of their income. The federal agency also said the rules address troubling trends in the proliferation of campus debit and prepaid cards offered to students in exchange for monetary benefits to colleges and universities.
But CUNA said Wednesday it remained skeptical that the regulations will actually protect student consumers.
"We are still reviewing the final rule, but naturally we have concerns about any regulation that makes it more difficult for credit unions to serve their members," Ryan Donovan, CUNA's chief advocacy officer, said. "Government regulation that stands in between a member-owned credit union and its members isn't consumer protection when it impedes the delivery of service. So, we'll carefully review the rule but we're skeptical that this will be positive for credit union members."
NAFCU also voiced concerns for how the final rules might hinder credit unions' ability to serve student members.
"While NAFCU and our members firmly believe that students should have access to transparent information about a variety of safe and vital financial services, we are concerned that some aspects of the DOE rule may negatively harm the ability of well-regulated credit unions to serve this important student demographic," NAFCU Regulatory Affairs Counsel Kavitha Subramanian said. "Unfortunately, DOE's rule fails to recognize credit unions' unique model that allows each institution to pass earnings directly to their student members in the form of lower fees, particularly those credit unions formed by students and alumni of a university for the specific purpose of meeting the financial needs of their campus community. We look forward to continuing to work with the Department of Education to improve this rule to help credit unions continue to provide financial access to students in the future."
According to the Government Accountability Office and the U.S. Public Interest Research Group, institutions enroll approximately nine million students and about 40% of all college students have debit or prepaid card agreements.
GAO and consumer protection reports revealed troubling practices in the campus card market, including biased and incomplete information provided to students. They also stated third-party servicers used their access to student information to persuade students to select a preferred account over other options. In addition, the reports uncovered that some students paid high fees by using these accounts and lost their federal student aid funds as a result.
The DOE estimated nearly $25 billion dollars in Pell Grant and Direct Loan program funds are annually released to students at institutions using these accounts. The DOE proposed the Cash Management regulation in May.
Under the new regulations, colleges, universities and other educational institutions will be required to ensure that students are not charged excessive or confusing fees such as overdraft and transaction-swipe fees if students select an account offered directly or indirectly by contractors that assist institutions in making direct payments of federal student aid.
The new regulations also require institutions to provide students with a list of account options that the student may choose from to receive their student aid refunds, where each option is presented in a neutral manner and makes clear that the student can have their student aid deposited to their preexisting bank account.
Colleges and universities will also be required to ensure electronic payments made to a student's pre-existing account are made as timely as, and no more onerous to the student than, payments made to accounts marketed through the institution.
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