Higher One, a big marketer of student debit cards, agreed to repay $11 million to 60,000 students to settle allegations that it had charged excessive fees to students who overdrew their accounts, the Federal Deposit Insurance Corporation said.
Higher One contracts with hundreds of colleges to distribute financial aid, which students are encouraged to access using debit cards linked to the company's checking accounts. Many students receive aid that is more than the cost of tuition, and use the excess funds to cover housing, textbooks and other costs.
Higher One had partnered with the Bancorp Bank to issue debit cards, which brought it under the authority of the F.D.I.C. The bank regulator said in a stat ement that it determined that Higher One and the bank violated the Federal Trade Commission Act, which prohibits “unfair and deceptive practices.†The F.D.I.C. said that Higher One and Bancorp Bank charged multiple fees for non-sufficient funds on a single transaction when students overspent their accounts. Higher One also allowed the accounts to remain overdrawn for long periods of time, which allowed fees to accrue, and then withdrew the fees when subsequent deposits of financial aid were made, the F.D.I.C. found.
The settlement require Higher One to change the way it charges fees for non-sufficient funds. It can't, for instance, charge more than three of those fees on any account on a single day, and can't charge more than one such fee within a 21-day period for debits known as “automated clearinghouse transactions.†The company is also required not to engage in “misleading or deceptive†marketing.
A spokeswoman for Hig her One said it had already credited affected account holders, who represented less than 2 percent of its customers, and complied with other requirements of the settlement, which also imposes a $110,000 civil penalty on the company. “We believe the relatively low civil money penalty imposed reflects how seriously we take our commitment to our customers, the degree of the issue, and our level of cooperation with the F.D.I.C.,†the company said in a statement.
The F.D.I.C. also settled with the Bancorp Bank, which will pay $172,000 in penalties. As the issuer of the debit cards, the F.D.I.C. said, the bank was responsible for making sure Higher One operated its accounts in compliance with the law. Bancorp Bank did not respond to requests for comment.
Neither Higher One nor The Bancorp Bank, which has terminated its relationship with Higher One, admitted or denied liability in the settlement.
Higher One has been controversial on some campuses because of th e fees it charges, and because of its marketing to students who sometimes think they have no option but to open a Higher One account in order to receive their student loans,grants and scholarships. (Higher One typically stresses that while using its card is optional, it is the fastest way for students to get their money).
Following the announcement of the F.D.I.C. settlement, the federal Consumer Financial Protection Bureau issued tips for students on choosing a bank while attending college. The agency advises students that:
- You can't be required to use a specific bank or card. There may be a financial institution that operates on your campus, but you generally can't be required to use a specific account or card to access your student aid. If you have received a federal student loan, your school must provide a paper check or cash option.
- Consider choosing an account before arriving at school. Shop around, and don't feel limited by the banks operating ATM s on or near campus. Some financial institutions don't charge you for using any ATMs, and some will automatically reimburse you for fees charged for using an out-of-network ATM. Many institutions also provide a mobile phone app to remotely deposit paper checks.
- If your school offers it, sign up for direct deposit as soon as possible. If your school offers direct deposit, you may be able to provide the school with your account information in order to access your funds more quickly.
Have you used Higher One or another school-endorsed vendor to obtain your financial aid? What has been your experience?
