Today I had the chance to participate in a national student journalists phone conference centering around campus debit cards and the dangers they pose to students. Speaking on the call was Rich Williams, Higher Education Advocate with the U.S. Public Interest Research Group, Anne Johnson, Director of Campus Progress, and Rohit Chopra, Private Student Loan Ombudsman with the Consumer Financial Protection Bureau.
Currently the Seattle Central Community College District utilizes Higher One as a financial aid disbursement tool and is cited as a cost cutting measure. “Higher One has card agreements with 520 campuses that enroll over 4.3 million students,” says a link from U.S. PIRG. Noted in a follow-up email was that, “Higher One, makes 80% of its revenues by siphoning fees from student aid disbursement cards, totaling $142.5 million of its $176.3 million total revenues in 2011, according to SEC filings. These fees include ATM and other transaction fees, overdraft fees, and interchange fees imposed on merchants who accept cards.” It is also noted that “at least one fee listed on Higher One’s fee schedule would violate U.S. Department of Education rules if charged, (and) other fees may violate other rules.” Higher One most recently has been subject to litigation by the Federal Deposit Insurance Corporation, leading to “a penalty of $110,000, and $11 million in restitution to approximately 60,000 students,” according to a Huffington Post article from August 8th of this year.
Due to the nature of the phone conference I was only able to ask two questions but here is what I asked and the responses I got. A full audio transcript is featured below.
SGS: Has Higher One or any similar companies engaged in any illegal activities, to your knowledge? (Starts min. 15 in audio)
Rohit (CFPB): I can’t comment on any specific institution… investigations are obviously sensitive. I can say that on our website we have issued a consumer advisory and talked about one of the financial institutions (Higher One) who have gotten into trouble with the federal banking regulator. This institution was found to not necessarily be complying with all the necessary regulations to make it clear for students about what they were getting into. (He goes onto say that any students having trouble with fees related to student debit card should report violations to CFPB website).
Rich (PIRG): It’s a great question you have. There is two separate ways we’re looking at this…(audio blurred) two, we were pleased to see the FDIC hold Higher One accountable…in our report The Campus Debit Card Trap there is certainly breaking the rules but then there is doing something that is wrong but not necessarily against the rules and we think many of the predatory practices that banks and financial firms engage in on campus are in fact wrong and should be made against the rules. (He goes onto mention practices such as giving out free items for signing up and complex contracts. He says many of these things would be illegal with a credit card but not a debit card.)
SGS:It seems like most schools cite the financial benefits of campus debit cards; do you think there is a better option for campus administrators than using campus banking? (Starts shortly after min. 25 in audio)
Rohit (CFPB): One of the things I hear from school officials is that they often don’t know the best way to structure partnerships with banks ’cause they may not be able to fully understand how the bank or financial company makes money on the deal. So one of the things we encourage schools to do is to really do their due diligence on how that company is making money, look closely at the fees, and look closely at what else is being offered in the marketplace.
Ya know, students today don’t necessarily need to line up in branches (physically stand in line), many students can simply use mobile apps, remotely deposit checks, or primarily use ATMs. So there might be a lot more banks who don’t physically need a branch in order to serve students well. We’re going to continue to speak with school administrators and school officials to figure out better ways but again students also have a lot of things they can consider… (goes on to refer students to check out this link, called Student Banking 101)
Rich (PIRG): I’d add too real quick, Sebastian, a lot of the contracts we’ve seen are not public because unlike credit card contracts they’re not required to be public. In many of them we’re seeing the campus certainly promoting their getting a good financial benefit but we’re not seeing that financial benefit necessarily translate to the student. When students are considering a banking relationship our worry is that they see the school logo and they think the school has indeed negotiated a really good deal for them or it’s a better deal that’s been vetted in some way.
Sometimes it does seem, or suggest that, maybe the campus was tempted to take the deal that provided the most money rather then the most benefits to the student…so that can easily be fixed with a little bit of transparency and encouragement and that’s certainly what we have been asking for… (Please refer to audio for rest of interview)
The good news for the SCCD is according to Chopra schools cannot legally prohibit students from using other banks for their financial disbursement. He also encourages students to shop around and find the best suit for them, not necessarily what the school provides. This may be a good option for students given Higher One’s recent controversy.
Audio can be listened to here (read notes below before):
I apologize for the bad audio quality, I had to re-record my recording to make a digital file and then put it through a filter to improve audio quality. You will need to turn up your volume considerably, if not all the way, to hear. Audio goes in and out at 1:20-2:00 as I am moving to a quieter location.
15-18:00-My First Question
18:00-25:00-Other Reporters Questions
25:00-30:00-My Second Question
30:00-34:00-Final Reporters Question