Bank Fees Debit

Making bank partnerships work: tips for getting the best deal–for a school and its students.

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Until a few years ago, a visitor to a college campus might have
thought credit card vendors operated branch offices there, so pervasive
was their marketing. For many students, getting their first credit card
was a step toward adulthood. In the best of circumstances, students
began lifelong associations with a particular bank or financial
institution, and established their all-important credit history.

On the other end of the scale, low introductory rates too often
gave way to skyrocketing interest. The result was students racking up
thousands of dollars in
credit card debt

, on top of student loans and
fees.

But then Congress stepped in to regulate an industry that
legislators believed had grown out of control. The Credit Card
Accountability Responsibility and Disclosure Act of 2009 established
“fair and transparent practices
relating to
 relate prep

 relate prep → ,  
 the extension of credit
under an open end consumer credit plan, and for other purposes.”

As a result, it became tougher for credit card vendors to market
their cards to college students and alumni.
According to

prep.
1. As stated or indicated by; on the authority of:

2. In keeping with:

3.
 a recent report
by The U.S. Consumer Financial Protection Bureau, the number of
agreements giving credit-card issuers the right to market their cards to
students and graduates of U.S. universities fell 21 percent to 798 in
2011. At the same time, however, the revenue that colleges and alumni
associations had previously received from these companies also dropped.

But students still needed access to funds, schools still needed
revenue, and banks still wanted new customers. The solution was in debit
and
prepaid
  
tr.v. pre·paid, pre·pay·ing, pre·pays
To pay or pay for beforehand.


pre·payment n.
 bank cards, financial products that, so far anyway, are
subject to less regulation.

Done right, these bank card partnerships are a win-win. For
students and families, the cards are a simple way to make sure that cash
is available when needed. Schools continue to earn revenue from banks
and, in some cases, receive incentives to outsource various financial
and administrative functions, saving
operating costs
 npl →  
.

But, as the saying goes, with any contract, the devil can be in the
details.

When considering best practices, who better to turn to for advice
than a school that went through the arduous process of finding a new
student banking partner just last fall? Curt Sawyer, associate vice
president for university services at the
University of Central Florida

,
says the contract with a previous partner had run its course, and there
was mutual agreement to not renew.

Opening the bidding process brought interest from banks, financial
service companies, and even regional credit unions, he says.
“Several of them self-selected and dropped out, once they saw the
full scale of the process and the relationship we were looking
for.”

UCF

UCF User Communication Form
UCF United Cat Federation
 had three main requirements a partner would have to meet,
Sawyer notes. “The financial aspect was obviously important to us.
Budgets are tight so–make no bones about it–the financial component is
crucial. However, equally important was the customer service aspect and
the breadth of services offered. Finally, how seamless would the
transition be for our parents and our students?”

Here are five key areas for any institution’s leadership to
keep in mind.

Negotiating

Students typically access funds with a bank card and the standard,
ubiquitous ATM. As is the case in the consumer market, if the ATM is
owned and operated by the firm issuing the card, there is no fee
associated with accessing funds. However, when a “foreign ATM”
owned by another bank is used, the picture changes. In addition to the
fee (sometimes as much as $3) charged by the
issuing bank

, a
surcharge

 (often $2) is often imposed by the other bank. For students using the
cards off campus in a local college town, these fees can add Up quickly.

“I don’t think it’s terribly obvious to students
what all the fees are,” says Christine Lindstrom, higher education
program director for the U.S. Public Interest Research Group student
chapters. “Fee disclosures and fee schedules should be made
clearer. That is something that the universities, in negotiating these
partnerships, can make happen. They can see that all the different fees
that a student might be charged are easily understood.”

Sawyer agrees. “To put a fee on a monthly student checking
account doesn’t make sense to us,” he says. “So when we
had that conversation with our partners, we wanted them to tell us
quickly that they could or couldn’t do that. We didn’t want to
have to go through five layers of bureaucracy at the top and wait a
month to get a simple answer.”

Education

The world of finance is confusing and fraught with hidden
consequences. Sawyer says
financial literacy

 was a crucial component in
UCF’s deal. “We needed a partner that would recognize that a
good portion of our students that graduate are going to live in this
community, so the better job we do of educating them now, the better
citizens and the better leadership they will provide in the
future.”

“It was important to us to have our banking partner come in
and educate our students. That means actual classes that teach them how
to balance a checkbook, manage credit card debt, and learn wealth
management.”

Tacit Endorsement

Young people come to college eager to show their school spirit with
mugs, caps, sweatshirts, and the like. Why not a branded
debit card
 card that allows the cost of goods or services that are purchased to be deducted directly from the purchaser’s checking account. They can also be used at automated teller machines for withdrawing cash from the user’s checking account.
? On
the face of it, there’s nothing wrong with that. As long as the
partnership works well, the payoff to the school and the community is
substantial.

For example, Huntington Bank recently paid $25 million to co-brand
and link its checking accounts with student IDs at The
Ohio State
University

 main campus at Columbus; land-grant and state supported; coeducational; chartered 1870, opened 1873 as Ohio Agricultural and Mechanical College, renamed 1878. There are also campuses at Lima, Mansfield, Marion, and Newark.
 for a period of 15 years, a deal that includes an additional
$100 million in lending and investment to neighborhoods surrounding
campus.

However, some school-branded bank cards may give the impression
that the college or university endorses the product, when it
doesn’t. A bad experience with a financial institution can have a
carryover effect to the associated college or university long after
graduation.

“There is an innate trust that the student and the family have
toward the college that they don’t necessarily have toward the bank
or financial firm,” says Lindstrom. “So allowing the
co-branding to happen could signal to the student that they don’t
have to be as vigilant around the account and the product. While we
would encourage colleges and universities not to co-brand, if they do
they should make it abundantly clear that they are not endorsing the
product.”

Advocating for Students

Lindstrom says that, as with credit cards, some banking
partnerships sound good at first but have hidden fees that add up
quickly for students. “Sadly, the best deal for the college is not
always the best deal for the students.” The problem, she says, is
in the research and proposal stage. “No one is saying that college
bursars or business officers are knowingly negotiating contracts that
take advantage of students,” she explains. “But we believe
that, because of the budgetary pressures that colleges are under to do
more with less, they are out there looking for new revenue sources in
any way shape or form. The financial firms have this program or that
product, and these administrators are thinking about getting the best
deal for the college coffers.”

Administrators (and sometimes students) who sit on the committees
that oversee those contracts should be asking in-depth questions about
how the deals impact the students themselves and not just the revenue
stream.

UCF approached the bidding process with this very point in mind,
says Sawyer. “We really went to bat for our students. We made it
very clear to potential partners right from the start that they
couldn’t come in here and think they were going to make a fast buck
on our students.”

The key to making it work was getting the fine details spelled out
in the contract, he says.

“We were very upfront about transparency of the deal, because
it was all going to be in the contract. For example, we said, ‘You
can’t charge a monthly service fee on a checking account to our
students.’ At first they agreed, but then wanted to make that
conditional to students under the age of 25. Well, we have quite a few
students who are much older than that, and we insisted they waive the
fee on them as well,” Sawyer says. “It’s a process of
going back and forth so the key items we agree to are in writing, and
there are no surprises. It holds them accountable to what we
agreed.”

Self-policing

Unlike credit cards, prepaid cards and debit cards exist in a grey
regulatory area, and have fewer rules overall. Lindstrom believes that
colleges, using their leveraging power, can ensure that their bank
partnership continues to benefit everyone, and doesn’t veer off
course. That desire isn’t just a protection for students, but for
schools and financial firms, as well.

“It was highly unusual for Congress to get in the weeds on
minute aspects of credit policy as it relates to consumers a few years
ago,” Lindstrom says. “It isn’t a good deal for anyone
when that happens, so I think everyone would like to try to avoid
another attempt by Congress to try to step in.”

7 Principles for a Well-Structured School-Bank Partnership

1. Unbiased student choice of where to bank. The bank account
students begin at school may continue with them for decades. Such an
important choice shouldn’t be
skewed
 Epidemiology adjective Referring to an asymmetrical distribution of a population or of data
 by which bank gave the school
the most money. For financial aid disbursements, campuses should provide
students a diverse set of
disbursement

 options that clearly include the
ability to use their own existing bank account and ability to choose to
receive a check.

2. Low fees. Campuses should negotiate away fees that students
incur on their debit cards as well as make it easier for student debit
card consumers to avoid fees. Fees should not be charged to financial
aid funds.

3. Safe checking fees. For accounts not related to federal student
aid, student checking accounts should meet the minimum requirements of
the
FDIC

See Federal Deposit Insurance Corporation (FDIC).
 Model Safe Accounts Template, modified to address the needs of
students. Fees on student accounts should be commensurate with services
rendered and all fees should be disclosed prominently on the bank’s
website, mailers and other materials.

4. Unrestricted access to funds. Campuses should provide, and
regulators should require, an adequate number of regularly replenished
on-campus ATMs for financial aid disbursement. ATM deployment
measurements should be based on need during peak-use times, such as the
beginning of a
semester
  
n.
One of two divisions of 15 to 18 weeks each of an academic year.


[German, from Latin (cursus) s
 or quarter.

5. Strong consumer protections. Given the public’s perception
that a debit card is a debit card (whether or not it is prepaid),
colleges should insist that all campus debit cards carry the same level
of consumer protections extended to ATM debit card customers under the

Electronic Funds Transfer Act

.

6. No push marketing. The marketing surrounding these cards may
result in a student being pushed into a product or an agreement that
isn’t best suited for his or her needs. Given that the campus debit
card has already been chosen by the college, providing an implicit
endorsement, there must be strong rules in place to avoid push
marketing.

7. No conflict of interest. Many schools engaged in partnerships
with banks or financial firms can receive large financial incentives,
which at least create the appearance of a conflict of interest.
Contracts should be disclosed so that the public knows that the school
chose the debit card program that gives students the best deal rather
than the one that gave the college the most money. –Source: U.S.
PIRG