On June 7, 2012, two Democratic legislators urged three federal agency leaders to scrutinize the business practices of campus card providers. Sen. Dick Durbin, D-Ill., and Rep. George Miller, D-Calif., sent letters to the heads of the U.S. Department of Education and the Consumer Financial Protection Bureau, expressing concern that students are being "nickel-and-dimed" via fees on campus cards.
In the letters to U.S. Secretary of Education Arne Duncan, Department of Education Inspector General Kathleen Tighe and CFPB Director Richard Cordray, the lawmakers said campus cards can come with weak consumer protections and high or hidden fees, including PIN debit, balance inquiry, dormancy, account closure and reload fees.
Durbin and Miller cited U.S. Public Interest Group (U.S. PIRG) Education Fund research that said as many as 900 colleges are "pushing students into using campus debit cards that carry numerous unnecessary, costly and unknown bank fees." The lawmakers said, "At a time when total U.S. student loan debt is reaching the $1 trillion mark, we should not allow costly and inappropriate debit card fees to add to that debt."
The May 2012 U.S. PIRG Education Fund report, The Campus Debit Card Trap: Are Bank Partnerships Fair To Students?, singled out Higher One Holdings Inc., reportedly the largest provider of financial aid disbursement solutions in the United States. U.S. PIRG said 12.5 percent of all federal financial aid recipients nationally receive "refunds" (funds left over after tuition is paid and used for education-related purchases, such as textbooks) via check, direct deposit or Higher One OneAccount prepaid debit cards.
U.S. PIRG reported on criticism leveled at Higher One: students at universities in Oregon who were upset about fees for ATM transactions at out-of-network ATMs; a class-action lawsuit that claims Higher One violates fee disclosure laws; and a charge by the U.S. Department of Education that a $50 "lack of documentation" fee violated federal rules.
U.S. PIRG advised campus card providers to curb or eliminate ATM, overdraft, insufficient funds, transaction, abandoned account, check, account closure, replacement card and transfer fees. The agency also believes refund, reload and balance inquiry fees should be removed from programs.
In the wake of the higher level of scrutiny focused on the campus card market, prominent acquirer and campus card provider Heartland Payment Systems Inc. eliminated three fees from its financial aid disbursement card, Acceluraid.
On June 26, the Princeton, N.J.-based company said it removed the $30 dispute, the $1 bill pay and the 50 cent card-to-card transfer fees. "[S]ince our business model is not based on student fee income, we wanted to further decrease the potential financial burden on students by eliminating these specific fees," said Heartland President and Chief Executive Officer Robert O. Carr.
Jay Summerall, President of CardSmith, said the Doylestown, Penn.-based campus card issuer and program manager mainly offers instant-issue, campus identification cards tied to restricted authorization networks. The cards are essentially closed-loop and limited to use on campus and at select local merchants, he explained.
While the issue of financial aid disbursement largely does not affect CardSmith, Summerall said the debate lacks perspective. He believes, on the whole, the campus card industry provides an efficient, cost effective service to universities and students. "If you're not disbursing [financial aid] to a card, then you're writing a check," Summerall said. What the industry provides are "scaled systems that ā€¦ enable the schools to outsource and automate what is a very cumbersome manual process," he added
A main feature of CardSmith's cards is on-campus meal plan functionality ā€“ a vast improvement over the days of paper punch cards. "It's a way to make that more efficient," Summerall said. "And I think, in general, these services are viewed as valuable."
In fact, Summerall said CardSmith's university partners do not view campus cards as a money making venture, but as a service to students. Other than a card replacement fee if cards get lost, CardSmith programs are fee free, he said.
Summerall does not agree with all the fees other programs charge students, but if Congress were to regulate the campus card sector the way it regulated the debit card sector through passage of the Durbin Amendment to the Dodd-Frank Act, the law of unintended consequences would apply.
He said if Congress passed a law that said students couldn't be charged fees on campus cards, then "banks would go back to the schools and say, 'OK, because I can't charge them fees, I have a cost to deliver this service, I have to charge you, the institution.' The institution is going to say, 'OK, my costs just went up. I'm going to raise tuition.'"
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