As expected, the Federal Reserve Board finalized several important Dodd-Frank regulations in 2014. Moving to 2015, the Board has indicated that it will focus more of its attention on implementing the remaining provisions of the international Basel III agreement on banking regulation.
As I’ve blogged in the past, the U.S. Department of Education (DOE) – apparently now part of the growing ranks of federal banking regulators – is in the process of preparing a rule intended to make it extremely difficult for a financial institution to have any sort of business arrangement with a college or university. The DOE may also potentially try to regulate any account or product that comes into contact with federal Title IV dollars. If the Department has its way, it will be the students who are most impacted, as they see their access to financial services while at school significantly reduced.
Negotiations between regulators, schools and financial institutions came tantalizingly close in the last few months to the parties reaching consensus, only to have the process fall apart at the last minute. Since then, a chorus of policymakers has begun weighing in to express a variety of concerns about the Department’s proposals.
Some lawmakers are worried about the impact the rule could have on students’ access to mainstream banking products, while others questioned whether the DOE has the statutory authority to actually engage in this sort of sweeping regulation of bank products and services.
Enter the schoolyard bully.
The Consumer Financial Protection Bureau (CFPB) hasn’t exactly been on the sidelines of this issue. Quite the opposite, in fact. For more than a year, they’ve been on a clear mission to “expose” something they just don’t like: the idea that colleges and universities might enter into an arrangement with a bank (Gasp!) that helps the school (No!), benefits students (Not possible!), and gives the bank the opportunity to earn a relationship with students (Outrageous!) who will grow up and need financial products beyond basic checking accounts. Building a retirement nest egg, purchasing a home or a car and having insurance are all positive steps to building secure financial futures.
Like any good schoolyard bully that singles out the quiet kid hanging out by the tire swing, the CFPB – in a blog post and series of letters to several prominent universities – has engaged in a shakedown. Behind a façade of “transparency is good,” the Bureau is attempting to intimidate and shame colleges for being in cahoots with a financial institution, and for not making it easier for students to have access to the complete text of the agreement between the school and bank. Because after all, what rising college freshman wouldn’t be well-served and change their financial habits by reading stacks of contracts and legalese? It’s a painful irony that students could be made to suffer because two federal agencies think they know best what’s good for them, without any regard for their ability – as adults – to begin to make their own financial decisions.
I don’t mean to suggest that the schools are weak or meek, but this is just one relatively small part of a broad-ranging rulemaking process that, quite frankly, is not on most of their radars. So when this type of letter lands on their desks – a federal agency warning that something they’re engaged in represents a “failure” that “…may pose consumer protection risks” – can you imagine the stomach-churning, sweaty-palms, oh-my-god-what-have-we-done feeling that must incite with school officials?
That’s exactly the type of reaction – fear – that the CFPB is after.