Leading Democrats Commend Department of Education on Rule Protecting Students and Taxpayers from Abusive Financial Practices
Following the release of a new Department of Education rule this week, Congresswoman Maxine Waters (D-CA), Ranking Member of the Financial Services Committee, joined Committee on Education and the Workforce Ranking Member Rep. Bobby Scott (D-VA) and Rep. Peter Welch (D-VT) in expressing their support for critical protections that would put an end to financial companies steering college students to abusive, predatory financial products.
In 2009, President Obama signed the CARD Act into law, banning the marketing of credit cards on college campuses and resulting in billions in dollars of savings for American students. However, prepaid and debit card providers have continued to secure lucrative partnerships with schools, which have enabled them to lure students into depositing their student loan funds into high-fee bank accounts. The rule provides several new safeguards Democrats requested in a letter to the Department last July, including a ban on overdraft and point-of-sale fees on many cards. These fees cost one in four students up to $750 – often more than the cost of textbooks.
“For too long, predatory debit and pre-paid cards have taken our students’ financial future hostage with high-fee products that trap them in cycles of debt. As a result, their financial aid dollars are being spent not on books or tuition, but on these wealth-sapping fees, “said Ranking Member Waters. “While I commend the Department for this critical step forward, we need to do much more to make a quality education more affordable for students by addressing the crushing burden of student loan debt facing many young people, including the servicing of that debt by student loan servicers. I look forward to continuing to work with my colleagues and with the Department to protect and strengthen the financial future for college students across America.”
“Today’s rule equals greater consumer protections for students and their families,” said Ranking Member Scott. “This rule increases transparency for students in their financial aid disbursement options and will ensure that students have fee-free access to their student aid resources. This rule will enable students to make smart financial decisions and put more of their student aid towards educational expenses.”
“Average student loan debt exceeds $27,000 per student in Vermont. These unnecessary and misleading fees add insult to injury,” Congressman Welch said. “I applaud the Department of Education for protecting students from predatory practices that pile on to skyrocketing college expenses.”
In addition to the bans on overdraft and point of sale fees, the rule requires schools to regularly evaluate their contracts with financial institutions to ensure that all accounts have competitive and advantageous terms that are in the best interest of the students, as opposed to the best interest of the banks. The rule also creates more transparency for advocates, parents and students by requiring schools to report their contracts with financial institutions for the Department’s centralized and publicly available database. Finally, the rule ensures that providers can no longer create roadblocks for students who want to avoid high-fee accounts altogether and use their current bank account or an alternative, more competitive card.