Sept. 5, 2013 -- The nation's top consumer watchdog agency has opened an inquiry into the multi-million dollar deals between American universities and big banks for recruiting students to open checking accounts that critics say may be saddled with extra fees.
"Unfortunately, many see students as nothing more than dollar signs in backpacks," said Rohit Chopra, who is 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."
Federal officials are increasingly concerned about the burgeoning number of deals between banks and American universities, 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 9 million students nationwide.
Members of Congress and the Consumer Financial Protection Bureau told ABC News they are now examining hundreds of these agreements. In many cases, students and parents were never told that banks paid millions of dollars in exchange for exclusive campus access.
Bank officials may be staffing orientation sessions, printing T-shirts, and hosting welcoming parties. At a number of universities, banks have even gotten into the business of printing official student IDs, so the same card that gains a freshman access to the library can get him cash from the ATM.
"What we see here is that they've shopped for the best deal for the university, not for their students," said U.S. Rep. George Miller, the ranking Democrat on the House Education Committee.
Chopra said universities are "looking to make up revenues in creative ways."
"And one of those creative ways is marketing arrangements with financial institutions," he said.
Documents obtained by ABC News surrounding the multi-million-dollar deal between the University of Minnesota and TCF Bank provide a glimpse of how expansive the agreements have become. The Minneapolis-based bank is paying the University of Minnesota more than $1 million a year to help it recruit students as customers, even offering the school bonus payments of $34 for every student that takes a TCF Bank account.
A stroll around the bucolic Minneapolis campus shows what that money is buying. Incoming freshmen wear 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, is a TCF Bank branch. On the other side of building is the office where student IDs, called "U Cards," are dispensed. Some of the staff on hand are actually TCF Bank employees, who encourage students to merge their IDs with a TCF Bank debit card, promising "no-fee," "virtually free" checking accounts. Students who agree to deposit more than $50 are told they will receive a free University of Minnesota sweatshirt.
The university told ABC News the TCF Bank account is "one of the best banking options available to students," but that students are welcome to look elsewhere. But 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 to persuade these students to engage in this practice whether or not it's to the benefit of the students."
Both TCF Bank and the University of Minnesota say they are offering students one of the best deals available. Miller said he has seen comparisons suggesting that students may find better options online, or through a credit union. A major distinction 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."
According to the FDIC, 50 percent of young adults over-draw 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 that 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."
Officials at the University of Minnesota were reluctant to answer questions about the school's contract with TCF Bank, but provided ABC News with a statement defending the school's wide ranging arrangement with TCF Bank.
"The University of Minnesota shares the concern of ABC News and policymakers that there may be existing questionable practices by some financial institutions that adversely affect students," the statement says. "In such cases, the University supports policymakers who want to do what's best for students. We share that goal and our contracts and policies reflect these values. While there may be some existing business arrangements across the country that negatively affect students, the U of M's relationship with TCF Bank is not one of them."
"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.
Chopra said his agency will be conducting a forum at the end of September to share its findings about the relationships between banks and universities. He said the agency would like to make sure checking account deals have not become a new version of the kind of agreements colleges were inking with credit card companies just a few years ago.
In 2009, Congress cracked down on deals between universities and credit card companies after some instances where colleges were being paid royalties based on the number of students opening accounts and the amount they spent. In some instances the banks would also provide a bonus to the school if students maintained a high credit card balance.
There were "several cases where schools and financial institutions have gotten into arrangements that have raised eyebrows," he said. "Particularly, in the marketing of student loans and credit cards. And as the market has shift toward new products, like checking accounts and student ID cards that double as debit cards, we wanted to make sure those same practices aren't happening again."
Miller said that he would like to see Congress step in again if universities continue to turn to banks as a creative source of revenue.
"We outlawed those scandals, where the universities were using their power and persuasion with the students to steer them to a preferred bank," Miller said. "The universities weren't doing their students a favor then, and they're not doing them a favor now. They're taking care of themselves for the payments they're getting from the banks at the cost, in many instances, of low income students, middle class students who are struggling with the cost of education."