School’s back — but lessons learned from debit cards can be hard ones

Are agreements between banks and big colleges hurting students?

Most college students know firsthand the effects of the skyrocketing costs of higher education. Student loan debt is the number one source of debt in the country. The price of college doesn’t seem to be going down, either; students are taking out student loans more than ever before, with students collectively borrowing more than $1 trillion to pay for higher education.

Student loans are meant to pay for tuition and related expenses, like books. It’s fair to say that college costs more than that. Even the most dedicated students like to order pizza every once in awhile. Students often pay for these incidental costs with credit cards and, if possible, debit cards.

Students also like to show school pride. It’s hard to go to an Auburn game without wearing orange and blue, for example, and the Crimson Tide didn’t become famous for wearing gray. It makes sense that students often use cards with school colors, showing pride in their community and in their education.

But what are the true costs of such cards?

Colleges are entering into agreements with banks wherein banks market specifically to students, often by having debit and credit cards in school colors. There’s nothing particularly wrong with that, so long as the terms are not hidden or negatively impact students.

Unfortunately, that may be the case. Over one in 10 colleges have lucrative agreements with banks regarding student debit cards, according to a recent report by the Government Accountability Office. According to a report by the Consumer Financial Protection Bureau, banks are charging students an average of $34 per overdraft fee. For young students, many of whom are learning to use credit and debit cards responsibly for the first time, this can come as quite a shock. Statistically, young people are much more likely to garner overdraft fees than older debit card users, with only 61 percent of 18-25 year-olds failing to receive at least one overdraft charge.

Richard Cordray, director of the CFPB, is one of the proponents of transparency in agreements between colleges and banks. “Overdraft fees should not be ‘gotchas’ when people use their debit cards,” Cordray recently told news media. In addition, when colleges only inform students of one potential debit card option, it leads to a reduction in the free market – if students are only marketed one card, they may feel that is their only option.

In order to better protect students, the CFPB recently studied all 14 Big Ten schools regarding their debit card agreements with banks. According to the Huntington Bank, which paid Ohio State $25 million per their agreement, they are the “official consumer bank” of Ohio State University. Of the 14 schools, 11 had agreements with banks, and only four disclosed any of the terms. Only one, the University of Iowa, disclosed its full agreement.

Students not without protection

Some federal law does protect students. The Credit CARD Act of 2009 aims to enhance transparency and prevent deceptive credit card practices, for example. It also prohibits some types of marketing of financial products on college campuses. In addition, students have certain protections from illegal debt collection practices, bad faith agreements and consumer fraud.

Still, dangers lurk for unwary college students. Students concerned with unreasonable debit card fees, fraud or illegal collection practices should contact an experienced attorney familiar with consumer protection issues to protect their rights.

Keywords: Debit cards, consumer protection, debt collection