NBPCA: Department of Education Overstepped Authority and Should Withdraw Title IV Disbursement Rule

Proposed Rule Would Eliminate Popular and Cost-Effective Payment Method, Increase Costs for Students and Colleges

Jul 02, 2015, 10:00 ET from Network Branded Prepaid Card Association

WASHINGTON, July 2, 2015 /PRNewswire/ -- In a comment letter submitted today, the Network Branded Prepaid Card Association (NBPCA) called on the Department of Education to withdraw its proposed rule on the disbursement of Title IV funds, citing the department's lack of authority, experience and expertise to regulate financial services in the manner described in the proposed rule. Additionally, the NBPCA explained the proposed rule would effectively eliminate prepaid cards as an affordable and convenient disbursement option and lead to increased costs for students and schools.

In addition to making the point that the department lacks the necessary jurisdiction to propose regulations on financial services products, the comment letter also highlights the fact that the department failed to appropriately assess the costs and benefits of the proposed rule to students, schools, third party servicers and financial institutions as required by federal law.

"The Department of Education's proposed rule on the disbursement of Title IV funds clearly oversteps the department's authority by attempting to regulate financial services, which should instead be left to prudential financial regulators," said Brad Fauss, President and CEO of NBPCA. "Further, the department lacks the experience and expertise to effectively regulate the financial products that receive Title IV fund disbursements as evidenced by the fact that the proposed rule will ultimately increase costs and limit choices for schools and students alike as well as move the entire process back to a paper check-based system. To mitigate the damage caused by this cumbersome proposal, we urge the department to withdraw the proposed rule."

In its comment letter, NBPCA highlights the following key areas of concern:

a.    Onerous Fee Requirements Will Eliminate Prepaid Card Disbursement Option and Increase Costs for Students and Schools: The NBPCA supports providing students with a fee-free way to access their Title IV payments, and card providers currently comply with existing laws by providing a one-time, fee-free removal of all funds from their student cards as well as free access to in-network ATMs or branch offices on or near campus. The broad prohibition on fees included in the proposed rule would prove so restrictive it would likely result in third party servicers leaving the market, eliminating a desirable and affordable disbursement option for students and schools.

b.   Redundant Disclosure Requirements Will Create Confusion for Students: Despite existing disclosures as well as newly proposed disclosure requirements from the Consumer Financial Protection Bureau (CFPB), the department's proposed rule would create yet another short-form disclosure specifically for student cards. Ultimately, this would lead to students receiving multiple and possibly conflicting disclosures as required by overlapping regulations. We believe these additional disclosures will do more harm than good by potentially confusing students and suggest that any new student card disclosure requirement be issued jointly with the CFPB.

c.    Restrictions Limiting the Sharing of Information with Third Party Servicers and the Distribution of Unactivated Cards to Students Will Slow Access to Benefits: NBPCA supports the requirement to obtain a student's or parent's consent before opening a financial account for them. However, schools should not be prohibited from sharing information with Third Party Servicers to properly identify a student in order to allow a student to select a disbursement method.  In addition, card issuers should not be prohibited from distributing unactivated access devices to students so that they can immediately access their Title IV funds. Unfortunately, the proposed rule would prohibit this standard card disbursement practice and delay students' ability to access and utilize their Title IV funds prior to arriving on campus.

d.   Splitting Providers into Tier 1 and Tier 2 Arrangements Creates Confusion and Compliance Challenges: The NBPCA is concerned that the proposed rule does not clearly define whether a particular account offered by a financial institution is a Tier 1 or Tier 2 arrangement.  For this reason, the NBPCA asks the department to clarify that the proposed rule only applies to accounts established to receive Title IV Funds.

Many students and parents choose student cards because they provide a safe and convenient way to access and manage Title IV funds at a lower cost than other financial services products. The cards are also often linked to student ID cards and can be loaded with extra funds by the holder to increase convenience and allow students to manage funds and handle daily expenses on one card. Without this option, students and schools alike would face higher costs and fees to access and disburse funds.

The complete comment letter is available here.

About the NBPCA

The Network Branded Prepaid Card Association (NBPCA) is a non-profit, inter-industry trade association that supports the growth and success of network branded prepaid cards and represents the common interests of the many players in this new and rapidly growing payments category. For additional information, visit www.NBPCA.org, or follow us on Twitter @NBPCA.


Jennifer Tramontana

Keisha Vaughan
(202) 617-3076


SOURCE Network Branded Prepaid Card Association