January 21, 2015

CFPB proposes 'scorecard' to evaluate banks' student offerings

The Consumer Financial Protection Bureau recently proposed a system that would help academic institutions enjoy greater visibility into the products and services that banks are offering students, according to a statement released Jan. 14. 

Enhancing transparency
The government agency is looking to shed light on these companies' offerings at a time when schools and organizations are not required to disclose the partnerships they make to offer products such as debit cards, mobile banking and prepaid cards, American Banker reported.

By enhancing transparency, the government agency aims to assist schools so they only work with organizations that provide good deals. Academic institutions already compare different financial firms when considering which companies they will use to offer products and services to their students.

Request for comment
The government agency requested comment from the public on this draft version of the Safe Student Account Scorecard, indicating that it desired the feedback of various parties, including students, organizations representing these individuals, financial institutions and organizations that provide financial aid disbursement services.

These industry participants, account holders, service providers and consumer representatives have until March 16 to supply their input. In gathering this information and working on its proposal, the CFPB wants to not only promote enhanced transparency, but also level the playing field between different financial institutions offering products and services to students.

Scorecard information
To help bring about these changes, the government agency has proposed including the following key information on scorecards:

  1. Complete disclosure of marketing practices: Financial institutions offering school-sponsored accounts will be asked to disclose information on what they will do to ensure they are supplying students with information that is unbiased and objective.
  2. Clear information on features and expenses: To fill out the scorecard, financial institutions will need to supply information on what fees come with any specific products or services, including charges levied annually or alternatively for using mobile services.
  3. Revenue generated from accounts: By harnessing the draft scorecard, academic institutions would have an easier time request information about the expenses associated with student checking and prepaid accounts. Schools could use the form to obligate organizations to disclose how much financial support they provide to an academic institution, the fees banks generate for opening new accounts and what revenues they receive when their financial product makes a transaction.

By providing greater visibility on this information, the CFPB wants to help students get the best deals possible, Director Richard Cordray stated during a conference call Jan. 14, according to American Banker.

On the other hand, financial institutions that provide products and services to schools will need to disclose greater detail on their dealings with this customer base than they did before. This burden could prove cumbersome at a time when banks are already coping with a complex framework of rules and regulations.