College-issued bank cards charging high overdraft fees, watchdog group says

In a new report the Center for Responsible Lending called on nearly a thousand U.S. colleges to renegotiate deals with banks to eliminate overdraft fees for students.

“We hear a lot about a $40 cup of coffee where someone goes in, swipes their debit card for a $5 cup of coffee and unbeknownst to them they don’t have enough in their account and so the bank charges them an overdraft fee of $35,” said the center’s Leslie Parrish, one of the authors of the report.

The group looked at eight college-bank partnerships, including Cal State Fullerton, one of two campuses in the 23-university Cal State system that has such a partnership. (By one count over 850 post secondary institutions in the U.S. partner with banks to offer students debit or checking cards that can also be used to receive financial aid funds.)

Cal State Fullerton's student ID card, called TitanCard, can be activated as a debit card with U.S. Bank.

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The bank charges $36 up to four times a day for each overdraft, and $25 weekly if the account remains overdrawn for more than a week.

The Center for Responsible Lending cites research that suggests that college-aged adults incur more overdrafts than older adults. Students could be paying $264 a year if the students are in the 13 percent of young adults who overdraft seven times a year.

The report says campus officials should have negotiated a better deal for students.

“Just don’t charge overdraft fees on debit card transactions, have those transactions declined for those students who are vulnerable to overdraft and don’t charge a fee, that would be the safest way to offer these accounts in students’ best interest,” Parrish said.

The Center for Responsible Lending focused on is calling attention to the overdraft fees now because it expects U.S. Department of Education officials to issue new rules on the college-issued debit cards. The U.S. Department of Education’s Office of Inspector General released a report last year warning of a conflict of interest in campus-bank agreements.

“Fullerton received an annual royalty payment based on the number of students, faculty, and staff opening a U.S. Bank checking account,” according to the report. "Over the first 5 years of the contract, Fullerton received $215,000 in royalty payments. Fullerton collaborated with U.S. Bank to promote and market the account to students."

Cal State Fullerton said it stands behind its relationship with US Bank but did not respond to criticism of overdraft fees.

A University of California spokeswoman said U.C. campuses do not offer such cards.