By Andrew A. Turner, J.D.
College students are receiving restitution for deceptive practices involving debit cards used for financial aid disbursements from universities, as a result of coordinated actions by the Federal Reserve Board and Federal Deposit Insurance Corporation. The banking regulators contended that students were misled by omissions in marketing materials about other disbursement methods available to students, a full and complete fee schedule, and the availability of fee-free ATMs. The advertisements also prominently displayed school logos, suggesting that the school endorsed the OneAccount product.
The Fed and the FDIC assessed a civil money penalty of $2.3 million against Higher One, Inc. of New Haven, Conn.—an institution-affiliated party of Customers Bank, Phoenixville, Pa., a state-chartered member of the Federal Reserve System—and WEX Bank, Midvale, Utah, a state nonmember bank, for allegedly misleading students who obtained financial aid disbursements through Higher One’s “OneAccount.” Under the Fed’s order, Higher One must also pay $24 million in fees to approximately 570,000 students who opened accounts with Higher One while Higher One's website and marketing materials were deceptive. The FDIC separately ordered Higher One and WEX Bank to pay total restitution of approximately $31 million to an estimated 900,000 harmed consumers.
Misleading information. Higher One provides colleges and universities with financial aid disbursement services for students. Specifically, after payment of tuition and other expenses owed directly to the school, the remaining financial aid, such as money for books, supplies, and living expenses, can be disbursed to students through Higher One's OneAccount. The OneAccount is a debit card-based product that is offered in partnership through financial institutions. WEX Bank has offered the OneAccount since May 4, 2012. Customers Bank has offered the OneAccount since August 2013.
According to the agencies, Higher One’s website and associated materials omitted material facts about certain fees, features, and limitations of the OneAccount in violation of Section 5 of the Federal Trade Commission Act.
“It is important that financial products offered to college students under the sponsorship of their universities are clear, transparent, and trustworthy,” said FDIC Chairman Martin J. Gruenberg. “Today's action holds both the bank and its student card partner accountable for the practices related to the products they offered to college students and provides restitution to those students harmed by these practices.”
Fed Governor Lael Brainard added that deceptive marketing practices with respect to student loans “will not be tolerated,” and the action ensures that students who were misled will receive restitution.
Restitution. Under the Fed’s order, students who opened a OneAccount with Higher One at Cole Taylor Bank of Chicago, Ill., or Customers Bank between May 4, 2012, the date the deceptive marketing practices involving the OneAccount began, through Dec. 19, 2013, the date Higher One took corrective measures, will be reimbursed for the fees related to the deceptive practices.
The FDIC’s order requires that Higher One and WebEx reimburse customers for the $31 million in fees and penalties customers incurred between May 4, 2012, and July15, 2014.
Corrective measures. In addition to the payment of restitution to harmed consumers and civil money penalties, both orders require Higher One to take affirmative steps to correct the violations, and to ensure compliance in the future with all consumer protection laws, including the FTC Act.
Education department action. Controversy over partnerships between banks and colleges to market debit and prepaid cards to students has been under the spotlight in recent years. In October, the U.S. Department of Education issued a Cash Management regulation to address the proliferation of campus debit and prepaid cards offered to students in exchange for monetary benefits to schools. The rule is intended to enable students to:
- freely choose how to receive their federal student aid refunds;
- be given objective and neutral information about their financial aid disbursement options; and
- avoid excessive fees to access their federal student aid, including Pell Grants.
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