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Penalizing The Wrong Party On Campus

display of printed information about various forms of educational financial aid
photo courtesy the Manchester City Library

A crackdown by federal authorities against a company that charged college students exploitive fees to access their own money is welcome, but its target is too narrow.

The penalties apply to Higher One, a Connecticut-based company that partnered with banks to distribute financial aid refunds to college students. According to some college officials, Higher One has aggressively promoted its OneAccount debit cards to schools that, in turn, prod their students to receive aid refunds and college loan proceeds via the company’s plastic. A Miami Dade College student told the Miami Herald that she thought Higher One was the only choice to access her refund, and since more than 80 percent of her peers used the service, she is probably not alone.

Higher One’s fees were uniquely punitive, something critics noted as far back as 2010. These included a 50-cent fee for every transaction run as a debit card, rather than a credit card; a $2.50 out-of-network ATM fee; and a fee for inactive accounts that once reached as high as $19 per month. (The Miami Herald reported it was “only” $10 per month more recently.)

Banks have effectively lost the ability to engage in such customer shakedowns, so it was practically inevitable that federal regulators would come knocking on Higher One’s door. The company reached settlements with both the Federal Reserve Board and the Federal Deposit Insurance Corp. for alleged violations of the Federal Trade Commission Act. The Fed ordered Higher One to pay back approximately $24 million to students who had used its services; the penalty from the FDIC was $31 million. Both agencies also levied fines against the company, along with a bank with which the company partnered.

But while regulators did well to penalize the company for its deceptive and punishing fee structure, Higher One was not the only party to blame for the way students were abused. While some colleges and universities resisted Higher One’s financial blandishments, hundreds of others did not.

At this point, however, there have been no penalties against the colleges, nor against any college officials. No Justice Department investigation into whether any administrators may have received improper personal benefits. No settlements requiring colleges to disgorge or rebate any cut of the debit card profits they received. No penalties for possible violations of federal rules governing financial aid disbursement.

The Consumer Financial Protection Board, a vaunted creation of the Dodd-Frank law, is nowhere to be found in this case; the action against Higher One came from the Fed and the FDIC, which have no authority over colleges. This despite the fact the CFPB opened an inquiry into the arrangements between colleges and debit card companies nearly three years ago.

One small comfort: The Education Department announced regulations last fall to take effect this year that will require schools to provide students with objective and neutral information about financial aid disbursement options, and to ensure students can freely choose among those alternatives. Any schools that wish to continue to offer debit card options will no longer be able to offer cards that charge excessive fees.

This change is positive, but probably cold comfort to the students whose schools pushed them into fee-laced debit card programs instead of simply depositing their aid payments directly into a bank account or writing them an old-fashioned check.

Nor is this problem restricted to schools that partnered with Higher One. While Higher One was the largest player in this particular market, with over 500 campuses offering the service as of a few years ago, it was far from the only financial aid debit card provider partnering with school administrations. As of last year, approximately 9 million students had debit or prepaid card arrangements through their schools, representing about 40 percent of all college students, according to the Government Accountability Office and the U.S. Public Interest Research Group.

Rather than focus on providing education to students - and on keeping their own costs and their students’ debts as low as possible - many colleges have developed side businesses whose main function is not so much to serve the student body as to raise more revenue. Pushing debit cards is one. Requiring students to purchase campus-arranged health insurance, unless they demonstrate what the administrators deem to be satisfactory alternative coverage, is probably another. I have long believed that states should be investigating colleges for the unlicensed sale of insurance, and looking into the financial inducements that may encourage them to engage in the practice. But maybe this needs to be a federal case, too.

The action against Higher One is good news, as far as it goes. But it doesn’t go nearly far enough.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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