Recent regulations issued by the U.S. Department of Education will help protect students from unfair campus banking card practices that can eat into financial funds that will go into effect in July 2016.

In recent years, banks and credit unions have increasingly marketed financial products to students at colleges and universities across the country. According to the Government Accountability Office, at least 852 schools have agreements to market debit cards or prepaid cards to students.

Campus banking products are often used to disburse financial aid to students and can be linked to debit or prepaid cards. While these products can be convenient for students and cost-effective for colleges and universities, some have come under scrutiny for controversial overdraft fees and policies.

A 2014 Consumer Reports investigation of campus banking product offerings from nine financial firms found that, while some offered simple, low-cost fee structures and convenient access to funds, others came with high or multiple usage fees that added up to significant annual costs for those who used their cards frequently. Furthermore, accessing fee information proved very difficult.

The new rules adopted by the Department of Education establish a number of important protections for students, including:

• Minimum requirements for accounts opened during the financial aid disbursement selection process, as well as those directly marketed to students.
• A neutral menu of options for students choosing how to receive their financial aid disbursement, with direct deposit to an existing account displayed prominently as the first option.
• Affirmative consent from a student or parent to open a campus account before mailing an access device associated with the account, or linking a student’s ID card to the account.
• Meaningful access to free ATMs for campus accounts.
• Public disclosure of campus banking contracts, including prominent posting on school websites as well as submission to a centralized database.
• Banning point-of-sale and overdraft fees on certain accounts, and requiring banks to enable students to access their funds at any time without a fee through at least one method (for example by making a withdrawal at a bank branch or getting a lump sum check).
• Prohibiting partnering credit unions, banks or prepaid debit card providers from charging excessive overdraft fees or transaction fees.

“High and variable back-end fees such as overdraft fees shroud the total cost of basic banking services at the very time students need a transparent, low-cost account,” Tom Feltner, director of financial services at the Consumer Federation of America, said in a press release.

“Due to the Department of Education’s effective regulation, overdraft and confusing fees will be eliminated. This will ensure that much-needed financial resources go where they are most needed — to supporting a successful academic career,” Feltner added.

Credit Union Overdraft Class Action Lawsuit Investigation

A credit union class action investigation has recently been launched in response to consumer reports that many of these financial institutions have unfair overdraft practices. In addition, many credit union customers claim they are not fully informed about how the overdraft fees are calculated, which causes confusion.

Consumers claim that many credit union overdraft programs assess fees on the available balance, which, in turn, may cause an overdraft fee to occur even if the actual account balance did not go negative.

Credit union customers say they were misled by the financial institutions when they were not informed of their available balance prior to the transactions that led to overdraft fees.

Some of the top U.S. credit unions that could be subject to overdraft lawsuits include The Golden 1 Credit Union, Sacramento, CA; Alliant Credit Union, Chicago, IL; Security Service Federal Credit Union, San Antonio, TX; Star One Credit Union, Sunnyvale, CA; and First Technology Federal Credit Union, Mountain View, CA.

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