High fees, high penalties at Higher One

New Haven, Conn.-based Higher One Inc. is under scrutiny by two federal agencies for questionable practices related to its student debit card program. Three students founded the firm in 2000 in an effort to improve the financial aid process. "That single purpose has evolved into a comprehensive collection of products and services that aim to improve the lives and promote the success of more than 11 million students across the country," the company stated, further noting that its business was built on "integrity, teamwork, creativity, transparency, value and service."

These core values appear to be at odds with findings by the Federal Reserve Board and the Federal Deposit Insurance Corp. Both agencies have accused Higher One of failing to disclose pricing on its website and associated materials, which resulted in many students overpaying to access their bank accounts or use Higher One debit cards, the agencies stated.

Higher One Chief Executive Officer Marc Sheinbaum said the company had divested many of the products in question before he joined the company. Higher One disclosed Dec. 15, 2015, that it will sell its disbursement business to Customers Bancorp Inc. for $37 million. Both companies expect to close the transaction in 2016, pending creditor and shareholder approval.

"After joining Higher One in 2014, I charged our team to set new standards for transparency and compliance," Sheinbaum said. "With the announcement of the sale of Higher One's disbursements and OneAccount businesses to Customers Bank, we're bringing this long-standing matter to a close and look to begin a new chapter for Higher One."

OneAccount, many fees

On its website, Higher One calls OneAccount "a non-interest bearing, Internet-only checking account designed for college life." Students can choose varying levels of service and pricing according to their needs. The accounts are marketed as requiring no minimum balance and having no monthly fee. Bill payment and interactive money management tools are also available.

Both the Federal Reserve and the FDIC have accused Higher One of deceptive marketing practices in OneAccount marketing and fee structure. The Federal Reserve, in a Cease and Desist Order, stated "Higher One benefitted from students directing their financial aid refunds to the OneAccount instead of to an alternative bank account or paper check." The agency claimed students paid exorbitantly high fees for PIN debit transactions and ATM withdrawals.

Federal Reserve actions

In addition to the Cease and Desist Order, the Federal Reserve assessed a civil penalty of $2.23 million against Higher One and ordered the company and OneAccount provider Cole Taylor Bank of Chicago to repay up to $24 million in fees to approximately 570,000 student account holders who paid fees between May 2012 and August 2013. Higher One displayed school logos on their ATMs while failing to advise students of nearby fee-free ATMs, according to the Federal Reserve's statement. Students may have construed this to mean that the branded, more expensive ATMs were endorsed by their colleges.

The Federal Reserve is also requiring restitution from Phoenixville, Penn.-based Customers Bank, which took over OneAccount operations and services in September 2013 and hopes to complete its acquisition of Higher One's disbursement program in 2016.

FDIC actions

The FDIC revealed Dec. 23, 2015, that it had reached a settlement with Higher One and associated financial institutions. Defendants will be required to provide restitution to approximately 900,000 consumers who are considered harmed by egregious fees and lack of pricing transparency.

The FDIC issued penalties of $2.23 million to Higher One and $1.75 million to Midvale, Utah-based WEX Bank for failing to provide fee-free ATMs and full fee schedules to students. As a result, the parties collected as much as $31 million in fees between May 4, 2012, and July 15, 2014, according to the statement. Higher One and WEX Bank must make full restitution of up to $31 million to affected consumers, pay additional penalties and take immediate steps toward becoming compliant with consumer protection laws, the FDIC stated.

The FDIC also leveled a fine of $172,000 at debit card issuer Bancorp Bank for unfair and deceptive pricing that violated the Federal Trade Commission Act. The bank's unfair or deceptive practices included multiple non-sufficient funds fees assessed on a single transaction in student accounts.

This ruling came on the heels of a separate, same-day settlement against the Wilmington, Del.-based bank, which issues prepaid cards on behalf of "numerous" nonbank entities, for its role in noncompliant prepaid card programs. The practices in question were:

• Failing to provide promised protections to consumers in the resolution of account errors
• Failing to provide promised benefits for a debit card rewards program that the bank offered with a third-party services provider
• Charging deceptive debit decline fees on a general purpose reloadable prepaid card

The settlement requires the bank to pay a civil penalty of $3 million and $1.3 million in restitution to approximately 21,000 affected consumers. The practices cited in this case included:

Higher One's compliance makeover

Higher One has agreed to make significant changes to its fee structure and keep them in place for a period of two years following the completion of court settlements and class action suits. The FDIC agreed to work directly with Higher One on crafting more transparent and understandable disclosures.

Higher One has agreed to make the following changes:

• Not opening any Higher One accounts without requiring students' separate affirmative consent to the fee schedule in addition to affirmative consent to the account terms and conditions for Higher One accounts
• Improving the clarity and readability of the fee schedule, consistent with best practices as recommended by the Pew Charitable Trusts for consumer checking accounts
• Where a fee is charged for the use of a non-Higher One ATM, explaining clearly in the fee schedule that both Higher One and an ATM owner may each assess a OneAccount holder a fee in connection with a non-Higher One ATM transaction
• Simplifying the process by which students may transfer their funds to other, non-Higher One checking accounts
• Offering a refund of up to $5 per day for non-Higher One ATM fees incurred when Higher One ATMs are not functioning properly due to any maintenance or repair related issues or when Higher One ATMs are out of cash
• Eliminating entirely the lack of documentation fee on OneAccounts
• Eliminating entirely the abandoned account fee on OneAccounts;
• Eliminating entirely the delinquent account fee on OneAccounts;
• Eliminating insufficient funds fee, non-sufficient funds fee or overdraft fee on recurring debit card transactions made with a OneAccounts
• Not marketing the OneAccount as "free" when marketing the basic OneAccount, even where no monthly maintenance fee is imposed.

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