How Colleges May Be Helping Banks Rob Their Students

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Credit cards collegeAre colleges letting their students get snookered by banks? That's what the Consumer Financial Protection Bureau is aiming to find out, and it has launched an inquiry into how colleges partner with financial institutions to market to students.

While the Credit CARD Act of 2009 limited how credit card companies could market to students on campuses, and made agreements between colleges and banks subject to public disclosure, the potential abuses here are not limited to credit cards.

Students use an array of financial products throughout their college career -- far more than in the past -- and many are now mandatory for day-to-day functions, including identification cards tied to bank accounts, debit cards used to access scholarship and student loan funds, and cards for school-affiliated bank accounts.

The required usage of these products can leave students in a precarious position, as the lack of competition among financial providers can drive up rates and fees.

Last summer, two banks were charged with "unfair and deceptive practices" related to their student debit cards. One of the practices cited was charging students ongoing "insufficient funds" fees for a single merchant transaction. These fees would then generate even more penalties due to the student having an overdrawn account. The banks then would recoup the fees from subsequent deposits of funds that were intended to cover tuition and living expenses.

Keep Your Guard Up

The relationships students have with banks will last long past the expiration date on a student ID card. Because it's impossible to avoid all banking products while pursuing a degree, students are advised to be fully aware of the fees associated with campus accounts, and whether alternative products are available.

As of 2011, 22 credit card issuers had 798 college card agreements with institutions of higher learning, with FIA Card Services (a subsidiary of Bank of America) leading the pack with 80 percent of all agreements for 2011, 633 in total.

The full list of college credit agreements is available in the CFPB's Annual Report to Congress. Tips for opening and managing college accounts are also available on the CFPB's website. You can provide input to the CFPB about your experiences with these products here.

Motley Fool contributor Molly McCluskey has no position in any stocks mentioned. Follow her on Twitter @MollyEMcCluskey. The Motley Fool owns shares of Bank of America.

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