Stealing from Students

Suppressed Report Outlines Abusive Practices, Fee Gouging by Wells Fargo and Others

By David Cay Johnston, DCReport Editor-in-Chief

The Trump Administration hid a study documenting financial abuse of students by some banks working hands-in-glove with colleges, the latest example of how instead of “draining the swamp” Donald Trump is turning official Washington into a paradise for swamp monsters.

The suppressed fee gouging report was made by the Consumer Financial Protection Bureau or CFPB.

Students attending colleges which have marketing agreements with banks and other financial institutions paid much higher overdraft and account fees than students at schools with no such deals, the study found.

“Wells Fargo charged students the most of all those with college campus marketing agreements—an average of $46.99 per account per year, while banks without such deals charged students an average of $11.93 in fees,” Kate Berry of American Banker reported.

Marketing deals between colleges and banks enrich the banks at the expense of students.

Some nonprofit credit unions also engaged in fee gouging. The University of Kentucky Federal Credit Union, for example, charged $37 per account annually, the study found.

One lender has charged $600 just to issue loan checks.

The Trump administration wants to kill the CFPB, as we have documented in nine previous DCReport articles. Lacking authority to do that, Team Trump has turned the bureau into a protection agency for the worst banking practices, damaging millions of consumers. Hiding findings of abusive practices and disloyalty to customers are key parts of this Trumpian strategy.

We know of the study only because it was mentioned last August in a scathing resignation letter by Seth Frotman, a CFPB assistant director and student loan ombudsman. 

Frotman accused Mick Mulvaney, who is Trump’s director of the Office of Management and Budget as well as acting director of the CFPB, of suppressing the report because it showed large banks knowingly ripped off students by charging high or inappropriate fees.

Frotman’s resignation letter charged that under Mulvaney the bureau was “shielding bad actors from scrutiny” while both undercutting enforcement of laws to protect consumers and undermining the bureau’s independence.

Referring to his extensive travels and especially his talks with military families who were conned by financial product sales agents, Frotman wrote that “American families need an independent consumer bureau to look out for them when lenders push products they know cannot be repaid, when banks and debt collectors conspire to abuse the courts and force families out of their homes and when students loan companies are allowed to drive millions of Americans to financial ruin with impunity.”

Mulvaney offered a cavalier response in a CNBC interview. Mulvaney said that he had never even heard of Frotman and had been told that while ombudsman Frotman never complained about the issues raised in his resignation letter. He avoided dealing with the substance of the issue—lender disloyalty to customers.

The study was pried loose by Allied Progress through the Freedom of Information Act, a nonprofit consumer watchdog created in 2015, during the Obama Administration, by Karl Frisch, a lifelong communications adviser for Democratic candidates and progressive organizations.

The fees in the study Mulvaney suppressed are modest compared to a test of student loan fees I made in 2008. The cost to a bank of sending a payment electronically is so minute that many banks charge nothing for the service.

After failing to get NelNet, a student loan servicer, to discuss its fees, I took out a Sallie Mae student loan for one of my children, an action I described in my 2012 book The Fine Print. NelNet divided the loan into two payments, one for each semester. It levied a $300 fee for the cost of issuing the first check. I repaid the loan immediately to avoid a second $300 charge.

Responsibility for protecting students from lenders falls to the CFPB under the law creating it. That law was sponsored by Senator Elizabeth Warren, a Massachusetts Democrat whom Trump loathes. 

The duty to police colleges so they do not help banks abuse students falls to the federal Department of Education, where Betsy DeVos, the education secretary, has repeatedly taken the side of bankers against the interests of students, as well as parents and grandparents who co-sign student loans. 

Some of her anti-student actions are detailed in It’s Even Worse Than You Think, my book about the Trump administration.

Hiding the study until it was flushed out using the 1966 Freedom of Information Act is just the latest example of how Trump has aggressively worked to do the opposite of what he promised in his inauguration speech:

“What truly matters is not which party controls our government, but whether our government is controlled by the people… January 20th, 2017, will be remembered as the day the people became the rulers of this nation again. The forgotten men and women of our country will be forgotten no longer. 

Everyone is listening to you now. You came by the tens of millions to become part of a historic movement the likes of which the world has never seen before. At the center of this movement is a crucial conviction: that a nation exists to serve its citizens.”

A core finding of the suppressed report is that marketing deals between colleges and banks enrich the banks at the expense of students.

“The bureau and other government entities have expressed concern over the relationship between revenue sharing provisions in contracts and fees charged to student accountholders,” the report says. 

“These provisions raise questions about potential conflicts of interest, including whether revenue sharing encourages higher-fee financial products that crowd out competition from providers of accounts for which student accountholders” would pay less.

Bank representatives say the report is hooey.

The report found that 573 colleges had marketing agreements. About 1.3 million students paid $27.6 million in fees to 14 banks and credit unions in the 2016-17 academic year, the report states.

In a form of what is apparently a legal kickback, 116 colleges were paid $16.7 million by banks and credit unions to promote financial accounts in 2017, deals designed to capture young customers whose financial resources would be expected to grow over time. PNC Bank paid colleges $7.6 million, U.S. Bank paid $3.2 million and Wells Fargo paid $2.1 million.

Significantly, lower fees were paid by students at the 457 colleges which did not get kickbacks. The estimated 839,000 students at colleges without marketing agreements paid $11.93 on average in fees, compared with $36.52 for the 482,000 students who used accounts at colleges with marketing agreements.

These fees differences indicate there is no enforcement of a 2015 Obama era rule by the Education Department requiring colleges to exercise reasonable diligence to make sure that under marketing agreements with banks students pay fees “consistent with or below prevailing market rates.”