United States: U.S. Department Of Education Turns Eye To Regulating Financial Services Industry

Last Updated: November 11 2015
Article by Patrick T. Lewis

On October 27, 2015, the United States Department of Education issued 433 pages of new regulations governing student loan programs under the Student Assistance General Provisions regulations promulgated under the Higher Education Act of 1965. The new regulations target a growing trend in higher education of financial institutions partnering with colleges and universities to provide prepaid cards and debit accounts to college students, with colleges often disbursing student loan funds to those cards.

The department indicated that its regulations were enacted in response to concerns of consumer advocates and others about alleged practices associated with these partnerships. Specifically, the department was concerned about allegations that educational institutions prioritized disbursements to their own affiliated accounts over aid recipients' preexisting bank accounts; that schools were implying to students that signing up for the card and/or debit account was a precondition to receive federal student aid; that financial institutions were providing their partner financial institutions with private student information unrelated to the financial aid process before aid recipients consented to opening accounts; that access to funds through the college accounts was not always convenient; and that aid recipients were allegedly "charged onerous, confusing, or unavoidable fees in order to access their student aid funds or to otherwise use the account."1 In the end, according to the Department of Education, "these practices indicate that many institutions have shifted costs of administering the title IV, student aid programs from institutions to students" and that regulation was therefore warranted.2

The new regulations impose the following key new requirements on partnerships between higher education institutions and financial institutions. They:

  • Require institutions to establish a "student choice" process that prohibits the institution from requiring students to open a specific account into which credit balances must be disbursed, and require the institution instead to provide a neutral list of account options;
  • Require institutions to ensure that electronic payments made to a student's preexisting bank account are instituted in a manner as timely as, and no more onerous than, payments made under an account made available to the student;
  • Limit the amount of personally identifiable information about students that may be shared with certain financial account providers prior to the student's selection of such a provider;
  • Require the educational institution to obtain the student's consent prior to issuing the student an "access device" (e.g., a college identification card) that is also used for accessing the financial account;
  • Mitigate fees by requiring reasonable access to surcharge-free ATM machines and, for certain accounts, prohibiting point-of-sale fees and overdraft fees charged to student account holders;
  • Require certain consumer disclosures for contracts governing the relationships between the institutions and financial institutions; and
  • Require many institutions to "establish and evaluate" their contracts with financial services providers "in light of the best financial interest of the students."3

The regulations also make changes to the manner in which educational institutions count, for enrollment status purposes, courses that a student is retaking for credit and streamline requirements for converting clock hours to credit hours. Outgoing Secretary of Education Arne Duncan claimed that "these new regulations will help make sure student loan debt is affordable for all borrowers and bring overdue reform to campus cards, a sector that too often puts taxpayer dollars and student consumers at risk."4

While these new regulations do not purport to directly regulate the financial services industry, they effectively do so by regulating the terms under which educational institutions can partner with banks and other financial services providers to offer banking products to students. In a statement, American Bankers Association president Frank Keating warned that the new regulations could "drive financial institutions to abandon the student bank account market, reducing competition, availability and choice for students."5

Financial services businesses currently offering student banking products should begin reviewing the terms governing their relationships with colleges and universities. The new regulations take effect on July 1, 2016, and will require compliance in 2017. In addition, financial institutions should also monitor how these new regulations will dovetail with the CFPB's January 2015 "Safe Student Account Scoreboard" proposal, which seeks to provide "responsible institutions of higher education with a standardized format to solicit critical cost and feature information from prospective financial institution partners."6

Footnotes

[1] Department of Education Final Rule, 80 Fed. Reg. 67125, 67126 (Oct. 30, 2015) (amending 68 C.F.R. Part 668).
[2] Id.
[3] Id. at 67126-67127.
[4] U.S. Department of Education, press release, Oct. 27, 2015, at http://www.ed.gov/news/press-releases/us-department-education-announces-two-final-regulations-protect-students-and-help-borrowers.
[5] American Bankers Association, "Education Department Finalizes Rule Targeting Campus Bank Accounts" (Oct. 28, 2015), at http://www.aba.com/Tools/Ebulletins/Newsbytes/Pages/NewsBytes-Display.aspx?WebId=d18a8e28-6914-43dd-b354-949fc90ef976&ListId=1897346d-aa69-4732-8600-71c93ee94f1c&ItemID=3674.
[6] CFPB, Request for Information Regarding an Initiative on Safe Student Banking, CFPB Docket No. CFPB-2015-0001 (Jan. 14, 2015), at http://www.consumerfinance.gov/students/request-for-information-regarding-an-initiative-on-safe-student-banking/.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.