Government Watchdog Agency Zeroes in on Student Financial Products
By Kristin McGrath
February 1, 2013
The CARD Act of 2009 limited banks’ ability to woo college students with freebies to get them to sign up for credit cards. Yet other financial products offered to students, such as student IDs that double as debit cards and on-campus bank accounts, can be just as dangerous to those with limited financial experience.
That’s why the Consumer Financial Protection Bureau (CFPB) is taking a closer look at the relationships between colleges and universities and financial institutions. The government watchdog agency is asking students, families and anyone from the higher education community to send in comments about their experience with financial products aimed at students. Follow the instructions for submissions here.
CFPB Richard Cordray says the agency’s efforts are simply an attempt to make sure students are “getting a good deal.” And that brought back memories for me — because I didn’t exactly get a good deal when I signed up a checking account at college.
A major bank has a branch on my alma mater’s campus, and, at my freshman orientation more than 10 years ago, it had a table covered in freebies — T-shirts and key chains with bottle openers (got to give them credit for knowing their audience).
I wandered over to the table and started talking to a rep from the bank, who immediately asked me if I had a checking account. I did — at a bank that had branches in that very city. But that bank, the rep pointed out, was a bus ride from campus. Plus, if I wanted to use the ATMs on campus, I’d be charged a fee. So why not open an account at a bank that had a branch right above the student dining hall and an ATM right next to my dorm?
That sounded logical to me, so I filled out some paperwork and got my photo taken for an ATM card. When it came time to pick which type of account I wanted, the rep asked me if my parents would be depositing money in my account for emergencies, or if I’d be getting a job and want to have my checks direct-deposited.
My reply was something to the effect of, “Yeah, I guess. Sure.”
“Well, then you’ll want this account,” the rep said, and I circled it on the form. No, I didn’t ask any questions. Yes, I’m embarrassed to admit that.
I moved a few hundred dollars from my old bank to my new one and used my free ATM access to get cash for pizza.
A couple months later, I opened up my statement to see a few ATM withdrawals, a few deposited birthday checks and … a monthly fee?
Turns out, I’d chosen an account that required a money wire or direct deposit of a certain amount every calendar month. Because that didn’t happen, about $10 was getting sucked from my account every month — because I kept only a few hundred dollars in the account, that made a significant dent.
I went into the bank’s branch on campus that day and asked all the questions I should have asked in the first place. I got a new account that required me to maintain a higher minimum balance — but that didn’t require regular deposits. I monitored my balance carefully and was able to avoid fees.
I’m not blaming the bank. I was an adult, fully capable of asking questions. Yet perhaps campus financial institutions’ marketing techniques and their fee disclosures warrant a look. Although college students are on the cusp of adulthood, they often don’t have the know-how (or the motivation) to make good, thought-out choices about financial products.
To help students avoid the mistakes I made, the CFPB published a step-by-step guide on student checking accounts. The highlights include:
- Research your account options before arriving on campus. That way, you won’t have to make a snap decision in front of the bank’s marketing people.
- Ask about fees.
- Be particularly suspicious of student financial products marketed as “free” and “easy.”
For motivation to make shrewd financial choices at any age, checkout my favorite personal finance blog posts of the week:
Drop that Debt discovers an unexpected perk of snow storms — you can’t leave your home and spend money.
Square Pennies has some tips for fighting back against inflation.
Money Master Mom explains why she’s happier without a “nice” car.
iHeartBudgets warns against the budget-devouring consequences of dining out.
Money Smart Life provides some guidance for staying on track after paying off all your debt.
Frugal Beautiful has some tips for having frugal night in instead of an expensive night out.