The Consumer Financial Protection Bureau (CFPB) recently published a stern warning to the top universities in the country. The subject of their concern? Lack of transparency on how and why financial products are vended on college campuses. Specifically, the CFPB is focused on requiring schools to reveal details behind the relationships colleges have with financial institutions who are marketing financial products to students.
The issue at hand isn’t new… financial institutions have long been setting up stands to market their services on college campuses. But imagine a college freshman wandering the quad for the first time only to be pulled aside and offered free pizza and what appears to be quick money or a financial deal. Promises like “cash rewards,” “financial freedom”, and “spending flexibility” are thrown around by a convincing salesperson. On top of that, a school’s logo is plastered on the shiny new prepaid card or credit card, immediately inciting a feeling of school loyalty and spirit. The temptation becomes is very real regardless of the actual benefit these offers give the student.
Young students are far from incapable of dealing with financial concerns, but at the same time it shouldn’t be ignored that many are only just beginning their independent financial lives. That students are being placed in the line of financial temptation on their campus is an increasing concern. Luckily, it’s an alarm the CFPB isn’t letting escape its attention.
Why the CFPB is concerned
The danger for students to enter into an agreement they don’t fully understand skyrockets when a financial institution pushes their products on campus. The representatives manning the stands are people who are marketing a product – meaning it’s their job to get as many students to apply as they can. It’s questionable (at best) whether these reps are truly considering the repercussions of these offers on an individual basis. Additionally, these financial institutions are often paying the college in order to market their product.
Rohit Chopra, the man in charge of investigating student loan complaints for the CFPB, published a warning to the schools about the consequences schools may face if they continue to remain opaque in their agreements with financial marketers. This publication came as a result of an inquiry into the details behind partnerships between colleges and banks that are marketing their products. He revealed the details of the investigation:
“Of the 14 member schools (yes, there are 14 schools in the Big Ten), it appears that at least 11 have established banking partners to market financial products to students. Of those 11, we were able to easily find only four contracts on the partner websites, but three of those four contracts did not contain important information, such as how much they pay schools to gain access to students in order to market and sell them financial products and services.”
In other words, less than 10% of the schools who have established partnerships with banks publicly share the amount they are paid. Without transparency, students are at an increased danger for entering into financial agreements without understanding the full story behind their exposure to these products. Chopra hopes to alert both schools and students to the dangers.
Credit Card Offer Transparency
University branded offers for “debit cards, prepaid cards, bank accounts, and other products branded” are the current concern but it’s not the first time that the CFPB has required colleges to disclose the partnership details with financial institutions.
The CFPB requires that campuses disclose terms behind their agreements with financial institutions offering credit cards and private student loans. This requirement came to being after it was publicized that many financial institutions offering credit card deals were paying colleges to access the pool of potential student borrowers on college campuses. Students were then targeted by these institutions to sign up for credit cards and loans. The result? If students didn’t fully understand the terms, they were put into a financially vulnerable place.
You can view the complete list of these credit card agreement terms per college here.
Future of financial disclosure
The good news? The CFPB hopes to create a list similar to the one shared above to disclose the details behind how and why institutions are marketing their financial services and products on campuses. Though it’s a step in the right direction, one fact remains: transparency only remains useful if the information is utilized by consumers. Though most college students are more likely to be concerned with their midterms than their financial future, they’ll only benefit from understanding the merits behind any financial deals they encounter on a campus. This knowledge could also help them implement a discerning eye as they continue to navigate the financial world on their own.
An opportunity to promote financial literacy
College campuses are supposed to provide a perfect climate to encourage learning and promote knowledge.This call to action by the CFPB is another reminder of how moving towards financial literacy, rather than shying away from it, can help consumers create a solid financial foundation. The disclosure of financial marketing terms on campuses is a step in the right direction. Shared and used correctly, financial products can help empower a young student to create a healthy financial foundation. But left unattended, these tools can easily become the cause of future financial pain. With millions paying off over 1.2 trillion dollars in student loan debt, there’s an increasing need for financial support and increased financial literacy.
Image Credit: Queen’s College