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The Trap of the Co-Branded College Credit Card
Banks and colleges win, students lose
You’re a new college student and you have lots of questions. Perhaps most important (to you) is how will you afford to do anything fun with basically zero money?
Then, you stop by one of those tables set up in the student center. There are friendly upperclassmen and some cool giveaways — like a free pizza or a gift card to a coffee shop.
The product: A credit card. Even better, it is branded with your college’s name and logo, and you’re told that it not only helps you build credit, but it also helps out this amazing school you’ve just enrolled in.
You take the plunge. The application is done on your phone and in just a few minutes, a credit card is on the way to you. In a few days, you’ll have a way to pay for nights out with friends and (you think) a way to build a solid credit history.
The Consumer Financial Protection Bureau (CFPB) wants you be wary.
Sure, building credit is useful for future major purchases (car, house). And, yes, well-managed credit is a helpful financial tool. Plus, you just want to fully enjoy the college experience.
Oh, and why not help out the very school you’ve chosen to attend?
The problem: The college usually wins via some sort of marketing deal and the bank wins with your business. But also: The bank usually charges higher fees on college-branded/co-marketed products.
That’s right: You could just go to your hometown bank and probably get a better deal on a credit card or other banking product.
Here’s more from NewsBreak:
A new report issued by the Consumer Financial Protection Bureau (CFPB) finds that college students often pay high fees for bank accounts and credit products marketed by the colleges they attend. In fact, the report notes that fees paid on banking products cross-marketed with a college are often higher than fees for the same or similar products on the open market.
The report raises questions about whether some marketing deals between colleges and financial institutions comply with Department of Education rules. The report also highlights a lack of transparency in the arrangements schools have made with financial institutions.
“Many college students trust that schools have their best interests in mind. While colleges have substantial bargaining power to obtain superior terms and pricing for their students, we find that many college-sponsored financial products cost students more than accounts that are readily available on the open market.” said CFPB Director Rohit Chopra. “Today’s report suggests that there is more work to do to ensure that students are not steered into school-endorsed products with junk fees. We will continue to work with the Department of Education to help students find the best possible products.”
And here’s a word from the U.S. Public Interest Research Group (PIRG) on this deceptive practice that serves to create a debt trap:
“We’ve studied campus banking relationships for decades. The findings of the latest CFPB report and the concurrent actions by the Department of Education are stark warnings that student consumers still face problematic practices that could hit them in the pocketbook.
“The Education Department’s concurrent “Dear Colleague” reminder to colleges and universities warns that ‘We are aware of certain practices that may pose risks or excessive costs to students.’ We recommend that the Education Department investigate possible violations of its cash management regulations.
“Students and parents should know that their best deal may not be the bank account or card with the college logo or that the financial services provider promotes. Shop around.”