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ABC News Investigation: Bank Pays $34 Bounty for New College Customers

Raymond Boyd/Michael Ochs Archives/Getty Images(NEW YORK) -- The nation's top consumer watchdog agency has opened an inquiry into the multi-million dollar deals between American universities and big banks for recruiting students to open checking accounts that critics say may be saddled with extra fees.

"Unfortunately, many see students as nothing more than dollar signs and backpacks," said Rohit Chopra, who looking into the issue for the U.S. Consumer Financial Protection Bureau. "Too often these deals aren't what's in the best interest of students."

Federal officials are increasingly concerned about the burgeoning number of deals between banks and American universities, saying colleges eager for new streams of income may be short changing their students. A study by the Public Interest Research Group last year found that there are now 900 card partnerships between colleges and banks -- agreements that could impact more than 9 million students nationwide.

Members of Congress and the Consumer Financial Protection Bureau told ABC News they are now examining hundreds of these agreements. In many cases, students and parents were never told that banks paid millions of dollars in exchange for exclusive campus access.

Bank officials may be staffing orientation sessions, printing T-shirts, and hosting welcoming parties. At a number of universities, banks have even gotten into the business of printing official student IDs, so the same card that gains a freshman access to the library can get him cash from the ATM.

"What we see here is that they've shopped for the best deal for the university, not for their students," said U.S. Rep. George Miller, the ranking Democrat on the House Education Committee.

Chopra said universities are "looking to make up revenues in creative ways."

"And one of those creative ways is marketing arrangements with financial institutions," he said.

Documents obtained by ABC News surrounding the multi-million-dollar deal between the University of Minnesota and TCF Bank provide a glimpse of how expansive the agreements have become. The Minneapolis-based bank is paying the University of Minnesota more than $1 million a year to help it recruit students as customers, even offering the school bonus payments of $34 for every student that takes a TCF Bank account.

 

At the University of Minnesota, freshmen wear Gopher t-shirts with the bank logo on the back. On one side of the student center, across from restaurants and upstairs from the bowling alley, is a TCF Bank branch. On the other side of building is the office where student IDs, called "U Cards," are dispensed. Some of the staff on hand are actually TCF Bank employees, who encourage students to merge their IDs with a TCF Bank debit card, promising "no-fee," "virtually free" checking accounts. Students who agree to deposit more than $50 are told they will receive a free University of Minnesota sweatshirt.

The university told ABC News the TCF Bank account is "one of the best banking options available to students," but that students are welcome to look elsewhere. But Miller said most are easily persuaded to sign up with the financial institution that calls itself the school's "official bank." He said records show 85 percent of incoming freshmen at University of Minnesota are signing up for TCF Bank accounts.

"People have an attachment to their university," Miller said. "And the university is using that persuade these student to engage in this practice whether or not it's to the benefit of the students or not."

Both TCF Bank and the University of Minnesota say they are offering students one of the best deals available. Miller said he has seen comparisons suggesting that students may find better options online, or through a credit union. A major distinction relates to overdraft fees. The TCF Bank account charges students $37 each time they swipe their debit card and try to spend more money than they have in their account.

Mike Schmit, 21, the student body president at University of Minnesota, said his close friend suffered that fate when there was a mistake with his paycheck and he accidentally overdrew his account.

"He went and he spent some money on books … and went below the zero mark," Schmit said. "He had four or five transactions after that and for every additional transaction under that $0 mark, it was a $37 fee, which was obviously tough for him."

"We're all college students," he said. "We do the student way with eggs and ramen and all that. And for somebody who's already having a difficult time paying for rent and paying for books, that can be difficult. Thirty-seven dollars, that's substantial for a lot of students."

According to the FDIC, 50 percent of young adults over-draw their accounts each year and those who do over commit their funds, do so on average seven times. A study by the Pew Charitable Trusts indicates that inexperienced banking customers are likely to exceed their balance as often as twice a month.

Jason Korstange, the Director of Corporate Communications for TCF Financial Corporation said that is not the bank's experience with University of Minnesota students.

"Our student account holders overdraft less than twice a year, not twice a month," Korstange said. "The overwhelming majority don't overdraft at all."

Officials at the University of Minnesota were reluctant to answer questions about the school's contract with TCF Bank, but provided ABC News with a statement defending the school's wide ranging arrangement with TCF Bank.

"The University of Minnesota shares the concern of ABC News and policymakers that there may be existing questionable practices by some financial institutions that adversely affect students," the statement says.

"In such cases, the University supports policymakers who want to do what's best for students. We share that goal and our contracts and policies reflect these values. While there may be some existing business arrangements across the country that negatively affect students, the U of M's relationship with TCF Bank is not one of them," the statement continues. "Our current arrangement allows students to make their own choices about banking, provides students convenience and abides by state and federal laws that protect student consumers."

Chopra said his agency will be conducting a forum at the end of September to share its findings about the relationships between banks and universities.

Copyright 2013 ABC News Radio

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