Another Push for Debit Card Rules

The Department of Education’s Office of Inspector General on Tuesday became the latest federal investigator calling for stricter rules on the debit cards offered to college students to gain access to financial aid funds.

In a report, the inspector general’s office said the department should enact new rules on colleges entering into agreements with financial institutions or other companies to provide debit cards on campus.

The report comes as the department is considering new debit card rules as part of a wide-ranging rule making session on federal student aid.

“Without additional regulation and proper oversight by the Department and schools to ensure that integrity and transparency exists in relationships between schools and [debit card providers], practices associated with the delivery of Title IV funds might not always serve the best interests of students,” the report concludes.

The report makes several recommendations for what types of new regulations the department should set. For example, colleges, the report says, should be required to monitor whether the debit card providers they hire are following federal rules and have a process to resolve student complaints.

The department should also require debit card providers to provide students with “objective and neutral” information about their products and to stop charging transaction or administrative fees to access federal aid funds, the report says. Consumer advocates have roundly criticized the marketing of some debit cards as misleading and have said the promotion may push students into products that are not necessarily the best option for them.

Further, the report said, the department should develop regulations that address the “conflicts of interest and financial incentives” that may exist between colleges and the debit card providers. The report recommends the department adopt conflict-of-interest rules similar to those enacted in 2009 following the private lending scandals that revealed cozy arrangements between colleges and banks.

The department’s inspector general is the latest official federal voice calling for tighter regulation of campus debit cards. Last month, the Government Accountability Office reached similar conclusions in its investigation of the industry. And the Consumer Financial Protection Bureau has criticized the lack of transparency in the agreements between debit card providers and colleges.

The report was requested by two Democratic lawmakers -- Representative George Miller of California and Senator Richard Durbin of Illinois -- who have been pushing for the Education Department to clamp down on campus debit cards.

Consumer and student advocates are also continuing to make their case for stronger regulations as the department’s negotiated rule making panel meets for the second time later this month. Student organizers have also brought the campaign to individual campuses, calling on college administrators to disclose more information about their partnerships with banks and other debit card providers. 

In a written response to the inspector general’s recommendations, the Education Department said that many of the issues raised in the report are under consideration by the rule making committee that began last month and will continue through the end of April.

Although the department said it was weighing many of the recommendations, it also noted that some of the proposed changes may not be necessary. It said, for example, that colleges are “arguably” already required under federal law to conduct such monitoring of the debit card providers they hire.

In addition, the department wrote that “it is too early to know whether regulating potential conflicts of interest will be necessary” as part of the current negotiating session.