Democratic lawmakers including Senator Elizabeth Warren today demanded that eight U.S. banks produce information about agreements they may have with colleges to encourage students to use their products.
“These lucrative deals are great for banks and great for colleges, but students can get hurt when they are steered into financial products that carry high fees,” the group of lawmakers wrote in the letter to Citigroup Inc. (C:US), Wells Fargo & Co. and six other banks.
They cited a 2012 report by the U.S. Public Interest Research Group that said more than 9 million students risk being “nickeled and dimed” by fees stemming from deals in which colleges allow financial firms to manage federal financial aid disbursement through checking accounts and prepaid debit cards. The consumer organization also said in its report that banks pay colleges “kickbacks” to get the deals.
The letter came from lawmakers including Warren, of Massachusetts, the former head of the Consumer Financial Protection Bureau; Representative Maxine Waters, of California, the ranking member of the Finance Committee; and Representative George Miller of California, the top Democrat on the House Education and Workforce Committee.
The letter also went to chief executives of U.S. Bancorp (USB:US), PNC Financial Services Group Inc. (PNC:US), SunTrust Banks Inc. (STI:US), TCF Bank, Huntington Bancshares Inc. (HBAN:US) and Commerce Bancshares Inc. (CBSH:US) Higher One Holdings Inc., a New Haven, Connecticut-based company that provides financial services to students, was also sent a copy of the letter.
Consumer Bankers Association president Richard Hunt, whose group represents most of the banks addressed by the letter, said the lenders are best placed to serve students via these so-called affinity agreements.
“Unlike many non-bank providers operating in this space, banks have every incentive to ensure students have a positive experience, as they hope to foster a long-term relationship,” Hunt said in an e-mail.
Shoba Lemoine, a spokeswoman for Higher One, which is not a deposit-taking bank, said the letter “shines a spotlight on revenue-sharing deals between big banks” and institutions of higher learning. “We don’t believe this model prioritizes the students’ best interests,” Lemoine said in an e-mail.
Student financial products will be the topic of a Sept. 30 Washington forum planned by the consumer bureau. CFPB Director Richard Cordray and the bureau’s student loan ombudsman, Rohit Chopra, will be among the speakers, according to a bureau news release.
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