Feb. 15, 2014 -- Congress should require the nation's colleges and universities to be more open about deals they cut with big banks for student checking accounts, says a new report from the U.S. Government Accountability Office.
The report called into question whether students are getting the best deal possible with checking accounts from banks that are endorsed and given prominence by their colleges.
"Schools may have incentives to influence student choice because some receive payments from card providers based on the number of card accounts or transactions, leading some consumer advocates to question whether schools always act in their students' best interests," the report says.
ABC News reported in September that federal officials have grown 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.
Bank officials may be staffing orientation sessions, printing T-shirts, and hosting welcoming parties, ABC News found. 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, in a September interview.
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.
Both TCF Bank and the University of Minnesota say they are offering students one of the best deals available.
Officials at the University of Minnesota provided ABC News with a statement in September 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."
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.
The newly released GAO report recommends congress update rules for debit card accounts to match the new rules imposed on credit cards.
"The contracts between schools and card providers are not publicly available and data on these cards are limited , in contrast to another college related product — affinity credit cards bearing the institution's name or logo — for which key information must be disclosed," the report says. "Increased transparency for college card agreements could help ensure that the terms are fair and reasonable for students and the agreements are free from conflicts of interest."
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 [for credit cards]," 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."