Talk about a holiday miracle! The New York Times recently reported that two federal agencies are ordering Higher One, the largest provider of financial aid services on college campuses, to give refunds to students who used Higher One’s campus accounts and paid deceptive fees. According to the Federal Reserve and the FDIC, Higher One didn’t inform students about some of the fees and features associated with their accounts. The company also used school logos on their materials to make it look like their colleges endorsed the accounts.
The Federal Reserve is seeking $24 million worth of repayment to about 570,000 students, while the FDIC ordered Higher One and its partner bank, WEX Bank, to return $31 million to 900,000 consumers.
Over the past few years, we’ve told you about how schools have increasingly entered into arrangements with financial institutions to disburse financial aid dollars, as well as market banking and prepaid accounts to students. These school-bank partnerships have helped schools cut costs, but also expose students to aggressive marketing tactics, high or unusual fees, and restricted choices for managing their money. Our Consumer Reports investigation in 2014 found that some of these accounts came with fees that added up quickly if you used them frequently, and also found that important information about the accounts was often difficult to find.
All that is about to change starting this year. New Department of Education rules, which we helped negotiate, will provide a number of important protections to students banking on campus:
- Set minimum requirementsfor accounts opened during the financial aid disbursement selection process, as well as those directly marketed to students;
- Require a neutral menu of options for students choosing how to receive their financial aid disbursement, with direct deposit to an existing account displayed prominently as the first option;
- Require affirmative consent from a student or parent to open a campus account before mailing an access device associated with the account, or linking a student’s ID card to the account;
- Require meaningful access to free ATMs for campus accounts;
- Ban point-of-sale and overdraft fees on certain accounts, and requires banks to enable students to access their funds at any time without a fee through at least one method (for example by making a withdrawal at a bank branch or getting a lump sum check); and
- Require public disclosure of campus banking contracts, including prominent posting on school websites as well as submission to a centralized database.
2016 is shaping up to be a better school year already.