Colleges Warned About Making Secret Deals With Credit Card Companies

In spite of rules intended to crack down on the once-rampant mis-marketing of credit cards to college students, some schools have not been fully transparent about lucrative agreements they’ve made with card companies, and could face federal penalties.

Not so many years ago, credit card company reps regularly descended on college campuses like birds of prey circling a herd of wounded animals, offering cheap T-shirts and other swag in exchange for signing up for high-interest credit cards that many students were not prepared to use responsibly.

Then came the 2009 CARD Act and its restrictions on on-campus marketing, and requirements that colleges disclose any marketing agreement made with a card issuer. While you no longer see credit card booths at college orientation days, the Consumer Financial Protection Bureau says some schools are failing to comply with the transparency rules.

This morning, the CFPB sent letters to 17 colleges around the country, warning them that they are not properly disclosing information to students about the schools’ marketing deals with credit companies.

The Bureau has not yet identified which schools received these warning letters, but did provide a copy [PDF] of the standard text used in the warnings.

As explained in the letter, a number of schools are only making these disclosures available upon request, rather than making the agreements public online for anyone to see. Making matters even more problematic, explains the CFPB, is that the majority of schools that only provide disclosures when asked for them “failed to provide the agreements when requested.”

According to the CFPB, 80% of college-sponsored credit card accounts failed to disclose their credit card marketing contracts on their websites. Only about 28% of them even took the step to publish information for the public on how to obtain their agreements, and a mere 8% provided the agreements upon request.

“Your school is receiving this notice because this agreement could not be publicly obtained using reasonable procedures and in a reasonable timeframe,” states the letter. “We have not yet made a determination whether your failure to disclose this agreement violates the CARD Act, but we urge you to reconsider your approach to public disclosure.”

CFPB Director Richard Cordray notes that, “History tells us that when schools and financial institutions get together behind closed doors, students can pay a steep price.”

The warnings come at the same time that the CFPB released its annual report [PDF] to Congress on the state of college credit card agreements.

According to the Bureau, more than 10 million college students attend a school that has either made a deal directly with a payment card company, or has allowed an affiliated organization — often an alumni group — to make a marketing deal using the school’s name.

That doesn’t include the many millions of students at schools that provide joint ID cards/payment cards to their students. The schools often reap financial benefits from these cards, giving them an incentive to push certain banks and products on students, even if better financial options might be available.

In fact, a recent report from the Center for Responsible Lending found that many of these ID/payment card combos carry hefty fees for overdrafts.

Last August, the CFPB urged college students to not assume they were getting a good deal from these college-sponsored cards and to shop around to find out for themselves if they could save money elsewhere.