On October 27, 2015, the US Department of Education issued final regulations regarding certain banking relationships between banks and college students. The regulations are effective July 1, 2016, with compliance dates for various sections stretching out to 2017. These rules add yet another regulator to the plethora of US and state government agencies regulating banks.
In recent years, colleges and universities have entered into agreements with banks that offer debit or prepaid cards to students as a way to access their student aid funds (“college card accounts”), which can be co-branded with the institution’s logo or combined with student identification cards and marketed as a convenient way for students to retrieve their funds. However, according to the Education Department, there have been increasing reports of a misuse of these arrangements, such as marketing that strongly implied that a student was required to open such an account in order to receive his or her federal student aid, inconvenient access to the funds in the account and mandatory fees being charged to use the account that could be burdensome or unclear.
To address these concerns, the regulations require colleges that do offer these type of college card accounts to comply with new procedures to more effectively protect the student, including the following:
- Colleges are prohibited from requiring students to open an account into which their student aid balances must be deposited
- Colleges must provide a list, presented in a neutral manner not favoring one option over another, of account options from which a student may choose to receive their student aid balances, with the student’s own current bank account listed as the first and most prominent option
- Colleges must ensure that electronic payments made to a student’s preexisting account are made in a manner that is both timely and not more burdensome than payments made to a college card account
- Colleges will be restricted in the type and amount of a student’s personal information that may be disclosed to a bank that provides a college card account to a student without that student’s prior consent
- Colleges must obtain a student’s consent prior to issuing or activating the card linked to the college card account
- Students are required to have access to surcharge-free automated teller machines (ATMs) to access their funds in the college card account, and certain other account-related fees are prohibited
Some opponents to the proposed rules noted that there already are federal banking regulations regarding debit and prepaid cards. The Education Department responded in the commentary to the final rules that it had sufficient jurisdiction to issue these rules because, among other reasons, it had authority over the disposition of federal student aid. It also noted that it had consulted with the banking regulators in developing and finalizing the rules.