US Senate Committee on Health, Education, Labor, & Pensions

Bicameral Group of Democratic Lawmakers Introduces Legislation to Prohibit Risky Banking Practices on College Campuses

Senate, House proposals will prevent financial institutions from paying colleges to steer students and federal aid dollars into questionable bank accounts, such as those with high fees

Thursday, May 22, 2014

WASHINGTON, D.C.—Lawmakers in both the Senate and House today introduced legislation to protect students from unfair banking practices involving campus-sponsored financial products and to preserve the integrity of federal student aid programs.

These bills remove conflicts of interest and end kickbacks between financial institutions and schools, ensure that students are in control of their own financial aid and banking products, and provide much-needed transparency over campus-sponsored financial products.

The effort was led by Senator Tom Harkin (D-IA) and Representative George Miller (D-CA), with support from Senators Dick Durbin (D-IL) and Elizabeth Warren (D-MA), and Representatives Maxine Waters (D-CA) and Peter Welch (D-VT), along with 59 additional cosponsors. The bill is supported by many organizations, including the Center for Responsible Lending, the United States Student Association, the Public Interest Research Group, Consumers Union, and Young Invincibles.

“Students work hard to get themselves through college, and federal student aid is intended to help them do just that. Their financial aid should go towards the cost of college, not to banks through unjust and often hidden fees,” said Harkin, Chairman of the Senate Health, Education, Labor, and Pensions Committee. “This situation is made even worse when financial institutions and schools partner to drive—and too often mislead—students into financial products that maximize these fees and do not serve students’ best interests.  Our legislation is simple: it puts an end to these abusive practices and puts the student back in charge of their financial aid.”   

“Many of today’s college students are being strong-armed into using financial products that are endorsed by their university. These products often carry unnecessarily high fees that chip away at students' federal grants and loans, which should be helping pay for classes, not lining the pockets of banks. In reality, these ‘preferred’ products aren’t preferable at all,” said Miller, senior Democrat on the House Committee on Education and the Workforce. “We stopped colleges from selling out their students to credit card and student loan companies five years ago, and now banks are at it again with checking accounts and debit cards. We need to act once again to clean up campus banking, eliminate the multi-million dollar kickbacks banks are paying out for preferred treatment, and protect students from being exploited.”  

“Across the country, hard-working college students are finishing another school year, many having taken on thousands of dollars of student loan debt to reach this point in their education,” Durbin said. “The last thing these students need is to be nickeled and dimed by excessive or inappropriate fees on the financial products that they use on campus – especially when those fees cut into taxpayer-funded, student aid dollars that should be helping them pay for their education. This bill will help students by establishing a strong code of conduct to make sure that campus financial products protect the students’ best interests.”

“Our nation’s next generation of leaders is already burdened with excessive education debt, making it harder for them to contribute to our economy and society,” said Waters, ranking member of the House Financial Services Committee. “Predatory practices that increase the already exorbitant cost of college are not reflective of our national priorities. This legislation would ensure students, many already drowning in debt, can no longer fall victim to unscrupulous practices that drain important federal financial aid through hidden charges, increased fees and other predatory behavior.”

“With rising tuition costs and more expensive college loans, a college education is slipping further and further from the reach of students from working families.  Too many students and their families are barely scraping by as they try to pay tuition bills,” Welch said. “The last thing they should have to worry about is financial institutions dipping into their pockets with ‘gotcha’ fees and deceptive marketing tactics.  Our legislation will put an end to these practices and Congress should pass it expeditiously.”

“Financial aid should be helping hardworking students get an affordable education, not boosting the profits of the biggest banks,” Warren said. “Students already face a mountain of debt. Colleges should not be allowed to push students toward debit cards and bank accounts with high fees that chip away at the money they need to pay for school.”

Banks and financial institutions have long sought to forge partnerships with colleges and universities as a way to gain access to young consumers. However, in order to access this lucrative market, some banks use tactics such as financial payouts to colleges that recommend specific financial products. Recent investigations into campus banking have revealed that too often, many banks and financial firms are using questionable methods to steer students into accounts that appear to be endorsed by their college, but carry high fees. In some cases, this leads students to be guided into needlessly expensive accounts that end up chipping away at their federal student aid and making college more expensive—while schools receive multi-million dollar kickbacks from the banks.

Congress has previously stepped in to protect college students from similar exploitive practices. Legislation in 2008 and 2009 addressed approaches being used to push high-cost credit cards and student loans on campus. Today’s legislation would extend these crucial protections to checking accounts, debit cards, and other financial products, helping safeguard the $150 billion in federal student loans and grants students receive each year.

In February 2014, Senator Harkin and Congressman Miller released a Government Accountability Office (GAO) report confirming a number of alarming practices that occur when colleges partner with financial institutions to market debit cards to students. In April, 23 members of the House and Senate sent a letter to Secretary of Education Arne Duncan, urging the Department to tighten the rules governing debit cards on campus while Congress develops legislation to further rein in predatory financial practices that target students. This new legislation follows recommendations from the GAO and the Inspector General of the Department of Education, and it extends current protections that exist for marketing credit cards and private student loans on campus.

The Senate legislation introduced today is titled Protecting Aid for Students Act for 2014; the House bill is the Curbing Abusive Marketing Practices with University Student Debit Cards Act (CAMPUS Debit Cards Act). More information on the legislation is available here.

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