Home > Personal Finance > New Scorecard Will Rate Student Debit Cards

Comments 0 Comments

While college credit cards with bad terms may be disappearing from America’s college campuses, many are simply being replaced with debit cards that come with hidden fees and other booby traps, regulators warned Wednesday.

The Credit CARD Act financial reform bill passed by Congress in 2009 placed strict regulations on how credit card issuers could market their accounts on college campuses, and the kinds of agreements issuers could arrange with schools. But the law did not cover debit and prepaid cards, which are often used to disburse financial aid or other college-related funds. As they have become more popular — more colleges have debit/prepaid agreements than credit card agreements now — abuses have become more common.

The Consumer Financial Protection Bureau announced the creation of a “Safe Student Account Scorecard” on Wednesday as an effort to bring more transparency to debit and prepaid cards. Schools can ask financial institutions to fill out the scorecard, which include details on various fees and other costs. The scorecard is voluntary, because the CFPB has no authority to force it on schools or issuers.

“Financial institutions have engaged troubling practices,” CFPB director Richard Cordray said. “More recently, both the FDIC and the Federal Reserve have identified serious illegal conduct by providers of student debit cards.”

Abuses include policies that nudge students toward repeated overdraft fees.

Rohit Chopra, who runs the CFPB’s student loan monitoring program, warned that what’s happening in the college prepaid and debit card market bears an “uncomfortable similarity” to abuses that occurred in the student loan market last decade. Students who sign up for school-branded prepaid cards often find terms that are inferior to those of similar prepaid cards on the open market.

Little Data Available

“You would think when colleges negotiate with financial institutions, they would get better (terms) than are generally available,” Chopra said. “We’re not finding that.”

Some schools may not know the right questions to ask of potential financial partners, Chopra said. He hoped the scorecard could be used as a negotiation tool. Scorecard responses, which will also include the financial incentives offered to the college for signing the agreement, may or may not be made public, the CFPB said.

“There is very little data available (about college debit and prepaid cards) and in some ways that’s what troubles us about this market,” he said.

Financial institutions and others are invited to comment on the scorecard until March 15. According to documents made public on Thursday by the CFPB, the scorecard will include:

  • A clear description of product fees and features: The draft scorecard specifically seeks information from financial institution partners on whether there is a fee for certain features, such as access to mobile banking and electronic statements, and the amount of any fees. In addition, the scorecard can help determine whether financial institutions charge any non-standard fees, as well as the availability of in-network ATMs. The scorecard also seeks to have financial institutions explain any other fees they may charge, such as a prepaid card reload fee or balance inquiry fee.
  • Full disclosure about the financial institutions’ marketing practices: The draft scorecard requests information on how financial institutions offering school-sponsored accounts would ensure that students receive objective and neutral information on their choices. For example, the scorecard asks financial institutions to provide an explanation as to how they will ensure that a college has the ability to approve certain marketing materials using its brand or logo.
  • How much the financial institution earns from the accounts: The draft scorecard provides a way for colleges to seek specific information about the cost of Safe Student Checking and Safe Student Prepaid Accounts. For example, colleges might require institutions  to say how much they receive for each account opened, how much financial support they provide to the school, and how much the institution receives for each transaction with its financial product.
  • Annual summary of fees: The draft scorecard would have financial institutions provide the school with an annual summary describing the fees charged to accountholders at the given college. The summary would include: number of student accountholders the previous year; average and median fees paid by a student accountholder per year; the three most frequently incurred fees per year; and the average and median fees paid by a student for each fee imposed.

Many students opt for debit cards or prepaid cards because they can’t qualify for a credit card due to their limited or non-existent credit history. These cards do not help students build their credit, however. If you’re a student wondering if you can qualify for a credit card, you’re entitled to free annual copies of your credit reports (if they exist). You can also check your credit scores for free on Credit.com.

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team