Many universities have contracts with banking institutions to handle financial aid disbursements or to link students’ school IDs to debit accounts. Some, like the U.S. Public Interest Research Group, have criticized these contracts for duping students into ominous banking relationships riddled with fees. Universities defend the deals, saying they make financial transactions easier for both the university and students.
Now, U.S. Sen. Sherrod Brown of Ohio is taking a side – against the banks. In a call today with reporters, he shared what he calls a public service announcement for students to be wary of banks endorsed by their university.
“Too many students have been slammed with hidden fees and penalties that cut into their already-limited financial aid dollars,” Brown told reporters. “That’s why I’m fighting for the reforms we made on credit cards to apply to debit cards, particularly those storing student financial aid. Students shouldn’t have to watch their federal aid dollars go to debit card companies.”
Brown hasn’t taken any legislative action – yet. He says he hopes it doesn’t get that bad. But he did say if things don’t improve, he’d get in touch with Richard Cordray, director of the Consumer Financial Protection Bureau – and Ohio’s former attorney general.
In the meantime, Brown sent a nasty gram to Higher One, which has contracts with seven universities in Ohio.
“Federal student aid programs should help students prepare for the future, not extract fee income from them,” Brown wrote in the letter to Dean Hatton, Higher One’s former president and a current member of its Board of Directors. “In anticipation of schools disbursing financial aid checks this week and next, I urge you to revisit your companies’ federal financial aid debit card policies to ensure that they are consumer-friendly and consistent with reforms that Congress enacted for the credit card market.”
You can read Brown’s entire letter below, or check out our compilation of university banking contracts here.
September 12, 2012
Mr. Dean Hatton
President and Chief Executive Officer
Higher One, Inc.
115 Munson Street
New Haven, CT 06511
Dear Mr. Hatton:
Increasingly, attention has been drawn to the services provided by companies that issue debit cards in order to store college students’ federal financial aid. Simply put, federal student aid programs should help students prepare for the future, not extract fee income from them. In anticipation of schools disbursing financial aid checks this week and next, I urge you to revisit your companies’ federal financial aid debit card policies to ensure that they are consumer-friendly and consistent with reforms that Congress enacted for the credit card market.
In 2009, Congress passed the bipartisan Credit CARD Act, to address the most egregious anti-consumer practices in the credit card market. Unfortunately, these reforms do not apply to other payment cards. While the Department of Education imposes some requirements on financial aid disbursement accounts, I urge your company to go beyond those requirements and implement reforms similar to those provided in the CARD Act. Specifically, I urge you to adopt the following best practices:
· Improving fees and disclosures, including: restrictions on over-the-limit fees; requirements that penalty fees be reasonable; and a prohibition against inactivity fees;
· Restricting the use of tangible gifts to college students on or near campus, or at campus-sponsored events, in exchange for using debit card services;
· Publicly disclosing all contracts between banks, firms, and schools, as six of my colleagues and I have urged higher education associations to do; and
· Submit an annual report to the Consumer Financial Protection Bureau and Department of Education including the terms and conditions of all promotional agreements with colleges, including the number of student debit card accounts opened during the time period.
In these tight fiscal times, our nation cannot afford to waste federal student aid dollars on excessive fees. While debit cards can clearly offer benefits to students, the associated costs must be reasonable and transparent. That is why I am urging you to implement these commonsense reforms. Thank you for your attention to this important matter. As Chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, I look forward to further exploring the issue of student debit cards with you.
United States Senator
Note: An earlier version of this story identified Dean Hatton as the president and C.E.O. of Higher One. Hatton recently retired from that position.