The reach of the Consumer Financial Protection Bureau, the nation’s top consumer watchdog, extends beyond well-publicized lawsuits claiming deceptive practices by a handful of for-profit schools. Recent actions by the CFPB, along with Congress and state legislatures, are highlighting the role of colleges and universities as financial service providers.
Schools may not think of themselves as “financial service” providers; but regulators do. Colleges and universities have long partnered with banks and others to provide:
- Federal student loans, including service-member and veteran loans
- Private student loans
- Credit cards
- Student checking accounts
- Debit cards tied to student ID cards or used for financial aid disbursement
- Loan servicing
- Debt collection
These products are drawing greater scrutiny in the wake of reports of questionable conduct, such as excessive student fees paid to schools, and school officials accepting significant gifts or payments in exchange for pushing services. And a lack of transparency in these arrangements fuels concern. Consequently, we are seeing an increase in oversight and legislation geared toward preventing school misconduct and increasing student awareness.
The Consumer Financial Protection Bureau
Created in 2010, the CFPB focuses on preventing financial harm to consumers, including young consumers and students. The bureau has broad authority to regulate, monitor, and take enforcement actions in student financial services like those listed above.
With its role somewhat undefined, the CFPB is casting a wide net, showing interest in those services, as well as internal campus charges, marketing, and privacy issues.
In addition to lender investigations and high-profile suits against for-profit institutions, CFPB initiatives have implications for all institutions. For example,
- In August, the CFPB sent letters to some universities urging them to publish the terms of their agreements with banks about student financial services.
- A recent CFPB “Joint Higher Education Memorandum of Understanding” with the U.S. Departments of Veterans Affairs, Defense, and Education steps up coordination to control recruiting practices by schools serving service members, veterans, and their families.
- The CFPB’s college credit card agreement database collects information on agreements between higher education institutions and credit card issuers.
- The CFPB is also actively participating in Department of Education rulemaking on issues including cash management and acceptable methods for disbursing Title IV Federal Student Aid funds.
It is difficult to predict where the CFPB will land next, but protecting student consumers is clearly one of the agency’s top priorities.
In addition to CFPB regulation, existing and proposed state and federal laws address campus financial services; some of those laws create significant liability for violations. For example, the proposed federal Curbing Abusive Marketing Practices with University Student (CAMPUS) Debit Cards Act would require institutions of higher education that have preferred banking arrangements with financial institutions to, among other things, develop a code of conduct and publish details of campus contracts. Illinois’ Credit Card Marketing Act requires colleges and universities with certain student credit card agreements to offer financial education, disclosures, and student privacy protections; violations carry a penalty up to $1,000 per incident. Most states have consumer protection laws and agencies, some of which provide the right to sue for misconduct in higher education financial services.
What this means to you
In short, partnering to provide financial services brings colleges and universities into the scope of financial services regulation. Schools are subject to many of the same laws that apply to banks, mortgage lenders, and debt collectors.
With this in mind, institutions should ensure policies and procedures comply with applicable consumer financial protection laws and consider plans for ongoing active compliance in financial services activity to avoid unfair, deceptive, or abusive practices.