With Fall Financial Aid Checks Being Released This Week, Brown Alerts Ohio Students To Bank Fees Which Could Cut Into Their College Money

Ohio’s Students Can Now Receive Federal Financial Aid on Debit Cards, But New Report Shows that Hidden Fees Imposed by Card Companies Could Cut into Limited Financial Aid Dollars - Brown Urges the Nation’s Largest Issuer of these Debit Cards to Provide Students with the Same Protections that Apply to Credit Cards

WASHINGTON, D.C. — With the fall round of federal financial aid checks being released this week, U.S. Sen. Sherrod Brown (D-OH) today alerted students to debit card fees that could cut into their money for tuition, housing, books, and other college costs. Ohio’s students can now receive their financial aid disbursements on debit cards, but a new report shows that hidden fees and penalties could cut into the already-limited financial aid dollars. Brown released a snapshot of Ohio colleges and universities that utilize the debit cards issued by Higher One.

“It’s unconscionable that an out-of-state financial institution is siphoning off students’ critical financial aid to pad their bottom line,” Brown said. “Too many students have been slammed with hidden fees and penalties that cut into their already-limited financial aid dollars. 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.”

 

Students at many Ohio colleges and universities can choose the option of receiving their financial aid disbursements on debit cards instead of the traditional paper check. Although these debit cards can be more convenient, they often come with hidden fees for certain transactions, like checking the account balance.  The Consumer Financial Protection Bureau’s Private Student Loan Ombudsman, an office created through legislation introduced by Brown, has provided students with resources to better understand the costs associated with these debit cards.

Specifically, the CFPB recommends that students:

  • Can’t be required to use a specific bank or card. There may be a financial institution that operates on your campus, but you generally can’t be required to use a specific account or card to access your student aid. If you have received a federal student loan, your school must provide a paper check or cash option.
  • Consider choosing an account before arriving at school. Shop around, and don’t feel limited by the banks operating ATMs on or near campus. Some financial institutions don’t charge you for using any ATMs, and some will automatically reimburse you for fees charged for using an out-of-network ATM. Many institutions also provide a mobile phone app to remotely deposit paper checks.
  • Sign up for direct deposit as soon as possible. Using direct deposit allows students to access their funds more quickly.

Brown today released a letter to Higher One, the largest issuer of debit cards for student financial aid. This out-of-state financial institution—which has card agreements with 4.3 million students at 520 campuses, including 7 Ohio institutions—made 80 percent of its revenues last year by siphoning fees from student aid disbursement cards, totaling $142.5 million in 2011. Higher One was recently fined $11 million by the FDIC for overcharging students.  In a letter to Higher One today, Brown called on this company to follow the same rules for disclosing terms of the card to students as they do credit card holders. This would ensure that students receive clear, easy-to-read information on the terms of the card and fees associated with it use.

Brown, who chairs the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, was an original cosponsor of the Credit Card Accountability Responsibility and Disclosure (CARD) Act – a law he helped pass that went into effect in early 2010. The CARD Act, which applies only to credit cards, is aimed at protecting American consumers from excessive debt and deceptive and predatory credit card practices. It increases transparency in the credit card industry by requiring enhanced disclosure of contract terms while improving billing and marketing practices. The law also curtails fees and penalties on cardholders, protects consumers from random at-will interest rate increases, and requires credit card companies to mail bills 21 days in advance instead of 14.

Today, Brown is calling on issuers of debit cards used for financial aid to voluntarily 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 and;
  • Submitting 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.

 

Full text of the letter to Higher One is below.

 

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.

 

Sincerely,

 

 

 

Sherrod Brown

United States Senator

 

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