ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, June 1, 2012

Does Your New College ID Harbor Hidden Banking Fees?

ATMIn the desparation brought on by the summer doldrums, we are relegated to the scare techniques favored by local news channels:

Are bedbugs sucking your blood and selling them to black market blood banks while you sleep?!?

Is an alien convict about to escape from his prison on the moon and travel back in time to pave the way for his species to invade the earth?


But the answer to the local news questions is invariably a disappointed, "probably not, but still . . . think about it."  And the answer to our question is: likely yes!

According to this report in the New York Times, and this report from the United States Public Interest Research Group Education Fund (US PIRG), about 900 colleges and universities have formed partnerships with financial institutions.  The colleges and universities issue student IDs which also function as debit cards that bear the logos of the partner institutions.  The banks thus effectively control the disbursement of student aid.

The partnerships vary in their terms.  Some provide large payments to the universities in return for giving the banks exclusive access to students.  So, for example, The Ohio State University has apparently brought in $25 million through its contract with Huntington Bank.  The money helps, since state legislatures are cutting funding for higher education.  In return, Huntington gets to open branches and A.T.M.’s on campus and gains exclusive access to more than 600,000 students, faculty, staff and alumni.

College CampusOthers permit colleges to save money by hiring banks or other vendors to provide financial services to students.  It's not entirely clear from the Times article, but this seems to mean that the universities save themselves administrative costs by having government loan money sent to financial instittuions rather than to the universities.  The financial institutions then disburse the money, but until they do, it would seem, they have the benefit of having the money.  In addition, according to the US PIRG report, banks and financial firms have “an unprecedented opportunity to market add-on products — bank accounts, A.T.M./debit cards and even loans and credit cards — to students with virtually no competition,”  Students may also have to pay ATM fees when they withdraw their loan money.  US PIRG characterizes the debits cards as wolves in sheep's clothing because the student do not realize that they are paying fees to a bank when they access their loan money.

The report highlights one financial institution, Higher One, which provides services on over 500 campuses.  But the Times quotes one of Higher One's co-founders, who points out that the alternative to Higher One's services is not some magical free world in which there would somehow be no expenses involved in the disbursement of student loan funds.  

Still, all of this seems to be a clever work-around to evade provisions of the CARD Act that were supposed to crack down on predatory lending practices that targeted students.  None of this is illegal, but it replicates the tactics that the banks used to entice students to sign up for credit cards and which the CARD Act was supposed to prevent.


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