WASHINGTON, DC – Seeking to protect students who use federal financial aid from being charged unfair fees on financial products that institutions of higher education are paid to promote, U.S. Senator Jack Reed and six of his Senate colleagues this week sent a letter to Secretary of Education Betsy DeVos asking what, if anything, the Department is doing to ensure students are being protected from predatory financial arrangements that allow financial harm to come to them while benefiting large financial institutions like Wells Fargo.  Reed was joined on the letter by Senators Sherrod Brown (D-OH), Dick Durbin (D-IL), Tammy Baldwin (D-WI), Elizabeth Warren (D-MA), Robert Menendez (D-NJ), and Jeff Merkley (D-OR).

The letter notes that under the Department’s cash management rules, institutions of higher education are required to negotiate agreements with financial service providers that are in the “best financial interests of students.”  It goes on to explain that an unpublished analysis provided to the Department by the Consumer Financial Protection Bureau (CFPB) about the use of college-sponsored deposit and prepaid accounts showed that in cases where colleges were paid to promote campus banking products, students paid, on average, three times more in account fees than students at campuses without these agreements.

“Not only did the Department fail to act on this information, but it joined the CFPB in suppressing the data despite several requests from Congress.  This regulatory failure allowed Wells Fargo to charge students an average $46.99 in fees compared with an average of $11.93 at institutions that were not paid to promote student accounts,” the Senators wrote.

“Given the evidence in the CFPB’s analysis, which has been available to the Department for at least ten months, the Department should have taken steps to review the agreements that resulted in the highest average fees for students—as such fees are clearly not in the best financial interest of students.  The case of Wells Fargo is especially troubling given the widely known enforcement actions taken against the company for opening unauthorized accounts to meet sales targets.  Nonetheless, a Department program review of Wells Fargo issued in June, 2017 largely ignored the bank’s noncompliance in numerous areas due to technicalities, and applied only minor fines in other areas.  Moreover, a statement from a Department spokesperson called the highly relevant information in the CFPB’s analysis “broader than the scope of the Department's oversight of school’s compliance” with federal regulations. The CFPB’s findings seem well within the scope of the Department’s oversight responsibilities,” the letter continues.

In November 2016, Senator Reed and the letter’s cosigners wrote to then Education Secretary John King asking the Department of Education about its enforcement of the cash management regulations in light of the other enforcement actions against Wells Fargo. 

The full text of this week’s letter can be found below.

The Honorable Betsy DeVos
Secretary
U.S. Department of Education
400 Maryland Avenue, SW
Washington, D.C. 20202

Dear Secretary DeVos:

We write regarding revelations from a Freedom of Information Act request that the U.S. Department of Education (“Department”) has failed to protect students who use federal financial aid and are charged unfair fees on financial products that institutions of higher education are paid to promote. This failure has allowed harm to come to students while benefiting large financial institutions like Wells Fargo.  We want to know what actions, if any, the Department is taking at this point to ensure students are protected from predatory financial arrangements that are prohibited by federal law.

Under the Department’s cash management rules, institutions of higher education are required to negotiate agreements with  financial service providers that are in the “best financial interests of students.”  Unpublished analysis provided to the Department by the Consumer Financial Protection Bureau (CFPB) about the use of college-sponsored deposit and prepaid accounts showed that in cases where colleges were paid to promote campus banking products, students paid, on average, three times more in account fees than students at campuses without these agreements. Not only did the Department fail to act on this information, but it joined the CFPB in suppressing the data despite several requests from Congress. This regulatory failure allowed Wells Fargo to charge students an average $46.99 in fees compared with an average of $11.93 at institutions that were not paid to promote student accounts.

Given the evidence in the CFPB’s analysis, which has been available to the Department for at least ten months, the Department should have taken steps to review the agreements that resulted in the highest average fees for students—as such fees are clearly not in the best financial interest of students.  The case of Wells Fargo is especially troubling given the widely known enforcement actions taken against the company for opening unauthorized accounts to meet sales targets.  Nonetheless, a Department program review of Wells Fargo issued in June, 2017 largely ignored the bank’s noncompliance in numerous areas due to technicalities, and applied only minor fines in other areas.  Moreover, a statement from a Department spokesperson called the highly relevant information in the CFPB’s analysis “broader than the scope of the Department's oversight of school’s compliance” with federal regulations. The CFPB’s findings seem well within the scope of the Department’s oversight responsibilities.

It is difficult to discern whether or how the Department is enforcing the requirements of its own regulations to protect the financial interests of students. Instead, the Department appears to be pushing forward with controversial contracting proposals and ignoring Congressional requests regarding an expansive new payment vehicle program.

To better understand the Department’s response to the CFPB data and analysis, please respond to the following questions:

1. Has the Department reviewed any of the Tier 1 and Tier 2 financial agreements between institutions of higher education and financial service providers identified in the CFPB’s analysis as having higher than average fees, including but not limited to Wells Fargo, for violating the requirement that they be “not inconsistent with the best financial interests of students?”

2. Has the Department identified any current institution’s cash management agreements as deficient in meeting the standard of the “best financial interests of students?” If so, please provide a list of deficient agreements and rationale for their deficient identification.

3. What actions has the Department taken to ensure that institutions correct any deficiencies?

4. What criteria does the Department use to determine that the agreements meet the requirement of the “best financial interests of students?”

5. What evidence have institutions of higher education provided to the Department demonstrating that they are meeting the requirement that agreements are in the “best financial interests of students?”

6. How do the Department’s reviews of the financial agreements ensure that there are sufficient safeguards in any revenue sharing or incentive structures to guard against conflicts of interest and excessive fees for student account holders?

7. What resources has the Department made available to institutions of higher education to help them identify financial institutions that have entered into consent orders or settlements with federal regulators related to consumer practices, or have established patterns of behavior that could put students at risk of financial harm? Please provide copies of said resources or guidance.

We would like to work with you to protect federal student aid dollars and the financial interests of students, and would appreciate your response by January 5, 2019.

Sincerely,