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Since the CARD Act in 2009, the credit card industry has been scrutinized for their controversial and suspicious business practices. The new law required banks and credit card issuers to start acting in accordance with regulations intended to work for the benefit of the consumer. The purpose of the CARD Act is to protect all consumers from unfair credit card billing practices and make information more transparent.
The Consumer Financial Protection Bureau (CFPB) has done well watching over the credit card industry to ensure the banks are following regulations, and providing insight into findings they may have discovered on questionable practices. One of the findings to make recent news relates to credit card agreements between financial institutions and colleges and universities across the nation. Their research shows a full report of how credit cards issued on college campuses have significantly decreased since the CARD Act went into effect.
How the CARD Act Applies to Colleges and Universities
Part of the CARD Act allows the CFPB to publish annual reports disclosing agreements between credit card issuers and institutions of higher education or certain organizations (fraternities, sororities, alumni associations, etc) affiliated with such institutions. The Act includes provisions that restrict marketing credit cards to college students on or near college campuses or at school-sponsored events, even prohibiting gifts or other tangible items to encourage students to apply. The Act also prohibits pre-screened offers to those under the age of 21 without a written application demonstrating the consumers ability to make payments, or requires a cosigner over the age of 21 with the means to make payments.
It was found that some colleges and universities were being compensated by credit card issuers for allowing—and encouraging—banks to market their products to their students. Some schools even went as far as making it difficult for students to bank anywhere other than where the school wanted them to. Since these practices have been brought to light, there has been a 70% decline in credit card agreements at colleges.
The Shift From Credit to Debit
The report also shows that the new trend is shifting from credit cards to debit and prepaid cards, which could be due to looser restrictions. There are fewer sunshine protections on debit and prepaid cards. These are put in place to protect consumers. They help make information on specific matters transparent and conspicuous For example, the CARD Act and the CFPB are pushing for more transparency about college credit card agreements because the public has a right to know that the financial institutions are compensating colleges and universities for encouraging students to sign up for credit cards.
College campuses and universities are beginning to see more prepaid and debit card products because there are fewer restrictions surrounding these payment products. It has not yet been required for financial institutions and schools to reveal their business agreements or records of compensation for debit and prepaid cards.. It won’t be long before the CFPB pushes for the same restrictions and regulations of credit card agreements to include debit and prepaid cards and their agreements with colleges and universities.
- Only 7 of the 35 schools that were looked at provided clear information on their websites about credit card agreements.
- 80% of schools in the sample had no website disclosure or guidance for requesting agreements.
- 14.3% of schools in the sample provided guidance on how to obtain and agreement on the school website.
- 5.7% of schools in the sample disclosed the agreements on school website.
- The number of colleges, universities, and affiliated organizations sponsoring credit card programs, and the number of accounts issued under such programs have decreased since 2013.
- Three-quarters of account growth is between alumni associations and issuers, indicating that most new accounts are issued to alumni, not current students.
CFPB is on the Lookout
The CFPB continues to monitor the schools that are not providing publically available information on these credit card agreements. The goal is to provide students and their parents with all information and to ensure clear understanding prior to signing up for a financial product. The CFPB recently released a public hearing and issued a consumer advisory reminding students and parents that under no circumstance can they be required, forced, or pressured into using a specific bank or financial product supported by the school.