College-bank deals inspire calls for openness from regulators
When freshmen arrive on college campuses, many attractive offers for banking services are waiting.
What colleges and banks don't tell students bothers regulators, who are urging schools to be more open about their deals with banks.
They caution that information about overdraft fees and minimum balances, among other issues, sometimes is unclear, and students rarely find out how much banks pay colleges for doing business on campus.
The practice of marketing credit cards on campus — one that critics said set up a dangerous debt scenario for some students — ground to a halt with the CARD Act of 2009, which barred credit card companies from marketing products on campuses and required companies issuing credit cards to those younger than 21 to obtain a written application demonstrating the customer had income to make payments or a co-signer who could do so.
Today, favored banks typically set up tables during orientation, offering free checking, debit cards with school logos and programs that allow students to link college ID cards to their accounts and use them as debit or ATM cards.
Students can bank where they choose. But those who don't sign up at registration might get literature from the banks later, under terms of agreements that require schools to provide the banks with student lists.
Phillipie Motley, 18, a University of Pittsburgh freshman football recruit from Columbus, Ohio, didn't take advantage of a PNC offer when he arrived in Oakland this summer.
“But after two weeks, I decided to sign up. It was fast, and it was the easiest way to do (banking),” Motley said, as he left the PNC branch at Nordenberg Hall.
Motley likes that he could link the account to his student ID. But he concedes he has no idea what the bank pays the college.
Most student accounts are small, but they amount to big business.
The Government Accountability Office recently found that 852 colleges and universities, serving about 40 percent of students, had deals to provide debit or prepaid checking cards to students. In February, the agency recommended that Congress require banks to publicly file those agreements with the Consumer Financial Protection Bureau.
“Making these agreements available for all financial products shows schools' and companies' commitment to transparency, helping students and their families understand basic information about these products before you sign up,” said Rohit Chopra, student loan ombudsman for the agency.
Jay Sukits, a professor of finance at Pitt and former investment banker, said banks look for long-term returns from students.
“Consumers tend to stay where they've started. Later, (students) may be customers for mortgages, brokerage accounts or money management,” Sukits said.
Carnegie Mellon University professor Sunder Kekre, director of the PNC Center for Financial Services Innovation at the university, said students provide bankers with an opportunity to study the behavior of future customers.
“You can use social media and see the online footprint of students. Their social activities are very intermingled with their banking behavior,” Kekre said. “These banks are slowly figuring out how bricks-and-mortar banks will have to change, going forward.”
Although banks are reluctant to release information on college contracts, there's little question they value these customers.
In 2012, Huntington Bank paid Ohio State University $25 million for exclusive rights to market products to OSU students, faculty, staff and alumni for 15 years.
“It is our policy not to disclose proprietary contracts, but Huntington's program with Ohio State is one of the most innovative in the country,” said bank spokesman Bill Eiler, noting the bank offers free checking with no minimum balance, free debit cards and 26 campus ATMs.
In Pennsylvania, PNC has agreements with 18 universities, including Pitt, Duquesne, Carnegie Mellon, Robert Morris, Penn State, Temple, Indiana and Slippery Rock.
Spokesman Fred Solomon said PNC opened its first campus branch in 1996. Today, it lists 45 colleges from Florida to Illinois as PNC Alliance Schools.
Students who opt to bank with PNC can sign up for free online and mobile banking with no minimum balance. A calendar warns them when accounts run low and even includes dates of major school events.
But students prone to overdrafts should consider the cost. A study by the Federal Deposit Insurance Corp. identified customers 18 to 25 as those most likely to overdraw accounts. Solomon said PNC forgives first-time overdrafts but charges $36 for each subsequent overdraft.
He declined to discuss other specifics, citing contract requirements.
West Virginia University, which recently signed with PNC, released its agreement to the Tribune-Review. PNC will pay WVU $500,000 upfront and up to $400,000 a year from 2014 to 2020, if the university meets yearly goals ranging from 3,950 to 4,200 new student and faculty accounts. There are bonuses if WVU exceeds goals.
PNC's multi-year contracts with Indiana and Slippery Rock universities, which the state-owned schools provided to the Trib, gave the schools up-front payments — $25,000 to Slippery Rock and $100,000 to Indiana, which is nearly twice as large — and yearly royalty payments for accounts.
Slippery Rock requires PNC to pay the school up to $475,000, provided students and faculty open about 1,220 accounts a year between 2011 and 2014. Indiana stands to collect up to $397,500 between 2011 and 2015 if it meets yearly account goals of 2,445.
Neither Penn State nor PNC would release details of their contract, but university spokeswoman Lisa Powers said the bank provides financial education to students as well as banking services. PNC paid Penn State $2.8 million over the past seven years, fees that Powers said helped underwrite the cost of its ID card program.
Staff writer Christopher Fleisher contributed. Debra Erdley is a Trib Total Media staff writer. Reach her at 412-320-7996 or firstname.lastname@example.org.