By Elvina Nawaguna
WASHINGTON, Sept 27 (Reuters) - Democratic U.S. lawmakersare demanding to know whether U.S. banks paid money or gavegifts to college officials to set up student debit card programsthat the legislators say are "fee laden" and inflate educationcosts.
Through these programs, the banks provide students withdeposit accounts or debit cards to access their scholarshipfunds and student loans.
At least one bank working with legislators has said it doesnot think the debit card programs are beneficial to students andbelieves they should be cut back.
In a letter dated Sept. 26 the lawmakers said they fear suchfinancial deals could open up students to exploitation through"fee-laden" debit cards that could raise the cost of theireducation and push students deeper into debt.
They also said they were concerned these arrangements couldlead to abuse of the federal student loan system with fundsbeing diverted to benefit the banks and the colleges.
The letter was sent to Wells Fargo, US Bancorp, PNC Financial Services Group, SunTrust Banks, TCF Bank, Citigroup, HuntingtonBancshares, Commerce Bancshares, and HigherOne Holdings.
The lawmakers include Representative George Miller, thesenior Democrat on the House Education and the WorkforceCommittee; Senator Dick Durbin, the assistant Senate majorityleader; and Senator Elizabeth Warren, a member of the SenateBanking Committee.
They demanded that the banks provide lists of institutionswith which they have such agreements, information on how manyaccounts the banks have opened, the fees collected over the lastthree academic years, and what the colleges were paid in return.
"At a time when college costs are increasing and collegestudents are drowning in debt, the federal government mustensure the integrity of student financial aid programs and stepin if financial aid dollars are being diverted through deceptiveor predatory practices," the letter said.
A spokesman for Wells Fargo said the bank looked forward toproviding the requested information.
Higher One said that it has been working directly withseveral congressional offices and has already shared much of theinformation requested.
"We don't believe this model prioritizes the student's bestinterests and we are completely committed to this practicediminishing," Higher One's spokeswoman Shoba Lemoine said.
The other banks either declined to comment or did notimmediately respond to Reuters requests for comment.
In a May 2012 report, the U.S. Public Interest ResearchGroups, a collection of non-profit advocacy groups, expressedconcerns about the aggressive marketing involved in theseagreements and weaker protections for the students.
The group found nearly 900 card partnerships betweencolleges and financial institutions at the time and thatstudents were subject to extra fees including per-swipe fees,inactivity and overdraft fees.
The Consumer Bankers Association said in a statement that those kinds of relationships can provide value to both thecolleges and the students and often provide "low-cost,high-convenience financial products" tailored to the students'needs, and that banks are obligated to be transparent in suchdealings.
- Banking & Budgeting
- debit cards