March 30, Re: Request for Information Regarding an Initiative on Safe Student Banking, Docket No. CFPB

Transcription

1 Ms. Monica Jackson Office of the Executive Secretary Consumer Financial Protection Bureau 1700 G Street N.W. Washington, DC Re: Request for Information Regarding an Initiative on Safe Student Banking, Docket No. CFPB Dear Ms. Jackson: These comments are submitted on behalf of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness ( CCMC ). The U.S. Chamber of Commerce (the Chamber ) is the world s largest business federation, representing the interests of more than three million companies of every size, sector, and region. The Chamber created CCMC to promote a modern and effective regulatory structure for capital markets to fully function in a 21 st century economy. CCMC appreciates the opportunity to comment on the request for information by the Consumer Financial Protection Bureau (the Bureau ) regarding agreements between financial services companies and colleges and universities. 1 The Bureau has expansive authority in the consumer financial services market. But that authority has limits. The Bureau has not observed those limits here. Instead, it seeks to use pressure and the semblance of authority to extend its influence beyond its statutory mandate. Specifically, the Bureau uses its Scorecard to press institutions of higher education (1) to publish agreements with financial services providers regarding any consumer financial services, and (2) to include particular terms preferred by the Bureau in those agreements. But the Bureau points to no legal authority justifying its action or any factual record demonstrating its wisdom. Colleges and universities will 1 See Request For Information Regarding an Initiative on Safe Student Banking, 80 Fed. Reg (Jan. 27, 2015) ( RFI ).

2 Page 2 have good reason to ignore this inexpert advice as they continue their longstanding pursuit of the best interests of their students. We accordingly write to emphasize two points: The Bureau lacks authority over colleges and universities with respect to prepaid cards, debit cards, and depository accounts offered by third parties. Colleges and universities are better situated than the Bureau to determine what is in the best interests of their students. (1) The Bureau lacks authority over colleges and universities with respect to prepaid cards, debit cards, and depository accounts offered by third parties. The Bureau has extensive authority within the financial services market. Its authority generally does not reach entities other than financial services companies, however. The authority provided by the Consumer Financial Protection Act, for example, does not reach institutions of higher education that neither offer nor provide consumer financial products or services. 2 Section 1021 of that Act, to which the Bureau alludes, 3 simply states that one of the Bureau s primary functions is collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets. 4 It does not provide actual authority to the Bureau. Nor do the operative sections of that law (e.g. those relating to supervision, 5 market monitoring, 6 and research 7 ) provide the Bureau any 2 See 12 U.S.C. 5481(6). The Bureau suggests that colleges and universities have long played a role in the offering of financial products to students. RFI, 80 Fed. Reg. at 4255 (emphasis added). That is not the standard under which the Bureau s authority attaches. We do not discuss here the responsibilities of colleges and universities under the Higher Education Opportunity Act of 2008, which is not administered by the Bureau. 3 See id. (invoking Section 1021). 4 See 12 U.S.C. 5511(c)(3). 5 See id (limiting supervisory authority to certain covered persons and service providers, and, in any event, requiring confidentiality). 6 See id. 5512(c)(4)(B)(ii) (providing authority to mandate reports to the Bureau under its monitoring authority only from covered persons and service providers ).

3 Page 3 relevant authority over universities and colleges that do not offer or provide financial services. They certainly do not provide the Bureau authority to force those institutions to adopt particular terms in their agreements with financial services companies. In contrast, the Credit CARD Act of 2009 gives the Bureau certain authority over agreements between institutions of higher education and financial services companies regarding credit cards. 8 But, true to its name, the Credit CARD Act does not provide the Bureau any authority over agreements between colleges and financial services companies regarding prepaid cards, debit cards, checking accounts, or other financial services. Indeed, the Bureau repeatedly has acknowledged as much, 9 and it does so again here. 10 The Bureau effectively concedes all this by only requesting information and making use of its Scorecard voluntary. But this concession does not justify the Bureau s efforts to shape conduct outside the proper scope of its authority. The Bureau might have views about the courses that colleges should offer to students using student loans or it might have opinions about what the university store should sell to students using a prepaid card. But the Bureau lacks both the authority and the expertise to regulate colleges and universities and has no basis for weighing in on such matters. Here, as in those examples, the Bureau should not mistake its broad authority for a license to advance its preferences anywhere and everywhere. In particular, the Bureau should respect and implement the policy decisions that Congress made in passing the Credit CARD Act including Congress decision not to cover certain financial products within the scope of that law. 11 (2) Colleges and universities are better situated than the Bureau to determine what is in the best interests of their students. 7 See id. 5493(b)(1) (directing establishment of research arm, but not providing additional authorities). 8 See Pub. L. No , 123 Stat (2009). 9 See, e.g., Wei Zhang & Will Sealy, Sunshine For College Credit Card Agreements (Dec. 15, 2014) ( The CARD Act public disclosure requirement is limited to credit cards and doesn t include other financial products marketed through schools. ), available at 10 RFI, 80 Fed. Reg. at Alternatively, the Bureau could exercise its authority to recommend that Congress amend the CARD Act. See id. 5492(c)(4).

4 Page 4 The Bureau implies that misconduct has been afoot in agreements between financial services companies and colleges and universities. But the sources it relies upon are paper thin. It cites questions raised by a single state attorney general report eight years ago, for example, and suggests, without providing any evidence, that targeted marketing and incentive payments to the school are somehow inherently problematic. 12 The Bureau also notes that the GAO has observed that increased transparency for college card agreements could help ensure that the terms are fair and reasonable for students and the agreements are free from conflicts of interest. 13 Of course, the Bureau does not address the possibility that the publication of these agreements will do nothing more than cause confusion among students and expense to the college or university. (Notably, the Bureau does not mention its recent decision to suspend collection of credit card agreements under the Credit CARD Act.) 14 The Bureau ultimately relies on nebulous and unverified recent concerns about the quality of banking products being offered to students through official partnerships 15 as the basis for its purported offer of assistance to institutions of higher education. But this is not mere advice about how to meet regulatory requirements (since the Bureau does not enforce any here). The Bureau instead seeks to use its Scorecard to prompt colleges and universities to conform their conduct to the Bureau s preferences: The Bureau identifies what it calls Safe Student Account features as if that term has some legal significance or is broadly understood. Instead, the features merely reflect the Bureau s unexplained preferences. 16 The Bureau continues its efforts to discourage the offering of overdraft protections, for example, by suggesting that a Safe Account has no overdraft protections. And it invents the new standard that a Safe Account offers two free money orders or e-checks a month. How the Bureau derived that number, it does not say. 12 RFI, 80 Fed. Reg. at Id. (emphasis added; internal quotation marks omitted). 14 See Submission of Credit Card Agreements Under the Truth In Lending Act (Regulation Z), 80 Fed. Reg (Feb. 26, 2015). 15 Id. 16 See Supplemental Document 2, Docket No. CFPB (Jan. 2015) ( Supplement ).

5 Page 5 Conversely, the Bureau purports to identify non-standard fees. 17 Of course, some of these non-standard fees are in fact quite standard, such as fees for certain types of prepaid card reload, in-person balance inquiries, and customer service calls beyond a certain threshold number. The Bureau nonetheless encourages colleges to prohibit their use. The Bureau suggests that all marketing materials should be presented in an objective and neutral manner. 18 But the Bureau does not explain the origin (or wisdom) of this recommendation, why it encourages what it could not require (because of the First Amendment), 19 or how it expects a financial services company to compete in the marketplace with such objective and neutral marketing. The Bureau urges transparency in the form of publication of any agreement between a financial institution and a college or university. 20 The Bureau does not assess whether this would be pointless information overload or whether this publication will bring any net benefit to the college or university. And the Bureau does not explain why such agreements should receive special treatment. Should the university or college post its agreement with its food service provider or other vendors? The Bureau lacks the authority or expertise to answer such questions about the governance of an educational institution. The Bureau implicitly recommends that institutions of higher education closely involve themselves in deciding the fee profiles and features of cards offered to students and in approving the content of associated marketing. 21 The Bureau, in other words, encourages colleges and universities to undertake conduct that the Bureau presumably would argue gives the Bureau authority over them as entities offering or providing consumer financial services. 17 Id. at Id. at See generally Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm n of N.Y., 447 U.S. 557 (1980) (discussing commercial speech doctrine). 20 Supplement at Id. at 2-5.

6 Page 6 The Bureau suggests that products should be assessed based on the fees paid by students. 22 But the college or university might conclude that an agreement that provides more income for the school as a whole (e.g. to fund a new science lab or additional scholarships) is preferable to an agreement with lower fees and lower income. To a regulator with a hammer, everything looks like a nail. The Bureau, as a regulator of consumer financial products, sees only fees to cap and disclosures to require. It lacks the authority, experience, or expertise to guide broader decisions by a school. The Bureau suggests that it is a best practice to prohibit financial institutions from providing any access device i.e. a card to students without affirmative, written consent. 23 The Bureau s recommendation reaches even unactivated cards. Again, the Bureau seeks to impose a requirement of the Credit CARD Act on other card categories. 24 But the Bureau does not explain how the record that motivated Congress to pass the Credit CARD Act supports applying the same rules to other types of cards. And the Bureau does not explain whether providing a student a college ID that can be linked to a prepaid account would meet this suggested standard. Notably absent from the Bureau s RFI is any discussion of alternatives to the agreements that the Bureau apparently seeks to discourage. The Bureau does not explain why a reasonable payment to a college cannot fill budgetary gaps or why it is not preferable to a tuition hike. Nor does the Bureau explain whether it thinks that products offered by financial services companies are less cost-effective or convenient than other payment systems, such as a school-run closed-loop account that a student can prepay and then use to buy meals. And the Bureau does not explain whether it would prefer for only high-fee ATMs that are unaffiliated with any bank or credit union to appear on campus. Instead, the Bureau uses implicit criticism and pressure to exercise influence beyond the scope of its authorities. But institutions of higher education know better than the Bureau how to protect their students interests. And 22 Id. at Id. at See 15 U.S.C. 1637(c)(8).

7 Page 7 colleges and universities deserve better than regulatory overreach that does not consider the full range of interests and consequences at stake. Basic principles of democratic accountability demand that the Bureau limit itself to the exercise of its statutory authority, not invent ways to impose its preferences even when its authority is lacking. Here, the Bureau has limited authority over the disclosure of agreements relating to credit cards offered to college students. It should not strain to pressure colleges and universities to conform other conduct to the Bureau s preferences. The Bureau instead should allow colleges and universities to decide what will most help their students decisions that the Bureau has neither the experience, the expertise, nor the authority to second-guess. We thank you for your consideration of these comments and would be happy to discuss these issues further with appropriate staff. Sincerely, Jess Sharp Managing Director