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Washington, D.C. – The Federal Deposit Insurance Corporation (FDIC) today announced an $11 million civil penalty and restitution settlement with the largest campus financial aid disbursement and debit card company, New Haven based Higher One, and its bank affiliate for alleged “unfair” and “unsafe” practices involving overdraft fees imposed on college students.
“We commend the FDIC for holding Higher One accountable,” said Rich Williams, Higher Education Advocate for US PIRG. “Student aid should not be a piggy bank for banks to dip into especially when their practices are unfair or deceptive.”
The FDIC’s settlement orders against Higher One and its partner Bancorp Bank allege that the companies “engaged in unsafe or unsound banking practices and violations of law and regulation, including engaging in deceptive and unfair acts.” “Among other things, the FDIC found that Higher One and The Bancorp Bank were: charging student account holders multiple nonsufficient fund (NSF) fees from a single merchant transaction; allowing these accounts to remain in overdrawn status over long periods of time, thus allowing NSF fees to continue accruing; and collecting the fees from subsequent deposits to the students' accounts, typically funds for tuition and other college expenses.”
In May, U.S. Public Interest Research Group Education Fund released The Campus Debit Card Trap, a report that found banks and financial firms now control or influence federal financial aid disbursement to over 9 million students by linking checking accounts and prepaid debit cards to student IDs and providing financial aid disbursement services. According to the report, students can pay significant fees that are charged against their student aid, including per-swipe fees of $0.50, inactivity fees of $10 or more after 6 months and overdraft fees of up to $38. Financial institutions use aggressive marketing to maximize these fees, the report found.
The FDIC is requiring Higher One to change many of their practices as a result of the settlement. Higher One will also pay restitution estimated at $11 million to current and past account holders. Additionally, the FDIC imposed civil penalties of $110,000 for Higher One and $172,000 for The Bancorp Bank.
“Well-structured campus card contracts should save campuses money without gouging students,” said ConnPIRG Director Abe Scarr. “We urge colleges to insist, if they partner with Higher One or any other bank or firm to disburse financial aid or provide campus services, that contracts prohibit onerous fees and other unfair practices.”
To see the full FDIC release see here: http://www.fdic.gov/news/news/press/2012/pr12092.html
For a full copy of the PIRG report click here: http://uspirgedfund.org/reports/usf/campus-debit-card-trap
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