By guest blogger Jessica Ranucci
In comments filed last week, banking industry groups opposed proposed Department of Education regulations that would crack down on “college card agreements” between universities and banks that affect students who receive Title IV federal education funds. Twenty-five billion dollars in federal Pell Grant and Direct Loan funds is dispersed annually through schools that have these agreements.
In these “college card agreements,” universities provide certain banks advantages in recruiting their students to campus debit and prepaid card accounts. In exchange, the universities receive money or other benefits from the banks. Many students on these campuses then receive the credit balances on their federal loan (used to pay the students’ living expenses) through campus debit and prepaid card accounts at the university’s preferred bank. These accounts often charge very high fees, effectively adding extra charges on federal student loans and limiting the amount students have to spend on living expenses.
The proposed regulations would prohibit schools from requiring student or parents to open a particular account in order to receive their federal credit balance. They would also require schools to inform students that the loan credit can be received in the student’s preexisting bank account and also to make electronic payments into those accounts as timely as the school-linked accounts.
Joint comments submitted by the American Bankers Association, the Consumer Bankers Association, and the Financial Services Roundtable last week allege that the Department of Education does not have the statutory authority to issue these rules. The disagreement centers on the agency’s interpretation of section 487(a)(2) of the Higher Education Act, which the agency interprets as prohibiting schools from charging students any fee for processing federal Title IV aid. The banking associations disagree and assert that the provision should be read much more narrowly.
Surprisingly, the banking associations also argue that the Consumer Financial Protection Bureau has primary authority over consumer protection laws and extensive infrastructure to supervise financial institutions and enforce these laws — implicitly inviting the CFPB to issue regulations for on-campus commercial lending.