(WASHINGTON) — A group of lawmakers is stepping up an examination of the multi-million dollar deals brokered between large banks and the nation’s universities after an ABC News investigation found that some of the arrangements may lead to students being saddled with unwanted fees.
“These lucrative deals are great for banks and great for colleges, but students can get hurt when they are steered into financial products that carry high fees,” said a letter to the banks signed by U.S. Sens. Richard Durbin, D-Ill.; Elizabeth Warren, D-Mass.; Sherrod Brown, D-Ohio; and U.S. Reps. George Miller, D-Calif.; Maxine Waters D-Calif.; and Peter Welch D-Vt.
The letter was sent to half a dozen financial institutions that are known to have exclusive deals to market their checking accounts and debit cards to students at large universities. It calls on the banks, including Wells Fargo, U.S. Bancorp, SunTrust Banks, Inc., Citigroup, Higher One Holdings, Inc., and TCF Bank, to supply Congress with details about the number of student accounts they carry on their books, the amount of money they pay to universities for exclusive access to students, and any gifts or perks they provide to university officials as part of those arrangements. The letter was sent last week, before the nearly government-wide shut down, which began Tuesday.
Federal officials are increasingly concerned about the burgeoning number of these deals, 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 nine million students nationwide.
The ABC News investigation, which aired on Good Morning America last month, focused on the relationship between the University of Minnesota and the Minneapolis-based TCF Bank. Documents obtained by ABC News showed the bank is paying the University of Minnesota more than $1 million a year to help it recruit students as customers, even offering the school bounties of $34 for every student that takes a TCF Bank account.
A stroll around the bucolic Minneapolis campus revealed what that money was buying. Incoming freshmen wore 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, was a TCF Bank branch. On the other side of the building was the office where student IDs, called “U Cards,” were dispensed. Some of the staff on hand were actually TCF Bank employees, who encouraged students to merge their student IDs with a TCF Bank debit card, promising “no-fee,” “virtually free” checking accounts. Students who agreed to deposit more than $50 were told they would receive a free University of Minnesota sweatshirt.
The university told ABC News the TCF Bank account was “one of the best banking options available to students,” but that students were welcome to look elsewhere. But Rep. 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.”
Rep. Miller said a major concern 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. It really is.”
Officials at the University of Minnesota provided ABC News with a statement defending the school’s wide ranging arrangement with TCF Bank. “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,” it says.
According to the FDIC, 50 percent of young adults overdraw 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 in response to ABC News’ initial inquiry that it 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.”
Korstange did not respond to email and voicemail messages seeking a response to the recent letter from members of congress. Other banks told ABC News they look forward to briefing Congress on their arrangements with universities.
“We are very proud of the choices we offer students in their banking relationship with U.S. Bank,” said Teri Charest, of U.S. Bank Corporate Public Relations. “Our student checking account has been recognized nationally by Money Magazine as one of the best in the nation for value and convenience.” U.S. Bank Corporate is a “campus partner” with dozens of universities across the country including Northwestern University, Xavier University, and Gonzaga University.
Kris Dahl, a spokeswoman for Wells Fargo, said, “We look forward to providing information about Wells Fargo’s campus card programs, which are designed to deliver valuable products, services, and education that help students build healthy financial habits and create lifelong relationships with them.”
Wells Fargo’s website lists more than two dozen colleges to which the bank offers the Wells Fargo Campus Card Program including California State University, University of Texas, Texas A&M and the University of Florida.
Shoba V. Lemoine, the communications director for Higher One, said the student-oriented financial institution supports the inquiry, saying it “shines a spotlight on revenue-sharing deals between big banks and institutions. We don’t believe this model prioritizes the student’s best interests and we are completely committed to this practice diminishing.” Higher One has relationships with roughly 700 campuses across the country, including state universities in Maryland and Montana.
The congressional query comes as the nation’s top consumer watchdog agency has opened its own inquiry into the multi-million dollar deals between American universities and big banks.
“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.”
This week’s congressional letter advised banks that the members were concerned they could be witnessing a repeat of deals between universities and credit card companies. Congress cracked down on those deals in 2009 after members became aware of instances where colleges were being paid royalties based on the number of students opening accounts and the amount they spent. In some instances the deals provided a bonus to the school if its students maintained a high credit card balance.
“These recent reports raise new concerns that financial institutions are once again going after college students and offering colleges financial incentives to hand over the keys to the campus,” the congressional letter says. “It is unfortunate to see that some institutions haven’t learned from past missteps and are repeating these troubling practices.”
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