In an earlier post, I discussed how student loan debit cards were wringing fees out of students. Such cards are issued by third-party vendors who work with schools’ financial aid offices. After a student’s financial aid is disbursed, the school pays all tuition and fees to itself and then places any aid left to cover books and living expenses on the third-party’s debit card.
Unfortunately, whenever a student uses the card to make a purchase with her aid funds, she is charged a fee by the card issuer. For financially-needy students who need the aid for living expenses, these fees add up quickly and amount to just another slap in the financial face.
Students and government officials are starting to fight back. The Denver Post reports that one of the largest issuers of financial aid debit cards, agreed to pay $15 million to settle a consumer complaint brought against it by Colorado college students.
According to the Post article, the company handling ATM cards that distribute financial-aid payments to thousands of Colorado college students has agreed to pay $15 million to settle lawsuit claims in other states that its fees and marketing practices were predatory, according to a regulatory filing. Higher One Holdings Inc. of New Haven, Conn., announced in an 8-K filing that it has reached a preliminary settlement in which it will pay the funds and agree to make changes to its practices.
The changes were not delineated, and the agreement remains to be approved by the courts.
The agreement would resolve several lawsuits filed against the company since 2012 by students at colleges across the country. A federal judge consolidated cases from five states this year.
Students for years have complained that Higher One charges unfair fees for them to access their financial aid, as well as pressures them into maintaining bank accounts they never requested.
The settlement doesn’t specifically include students in Colorado, where Higher One landed a six-year deal in 2010 for the 13 schools that make up the Colorado Community College System. That deal — worth $430,000 — also means the CCCS got a $1.1 million financial-management software system for free in exchange for the fee-driven cards.
The Denver Post reported the contract was approved even though Higher One was initially rejected for the competitively bid contract.
One published report cited anonymous sources who said students with a Higher One account between March 2006 and August 2012 and who incurred a fee would be eligible for payment under the settlement.
A company official did not respond to a request to confirm the information. Also unclear is whether that settlement would benefit Colorado students.
An independent report in 2012 found that the cards unnecessarily piled on fees that students paid to access their money. Higher One has contracts with hundreds of colleges nationally to provide financial-aid services, largely through the use of ATM debit cards.
Colorado officials eventually told the company to tone down its pitch to students.
The settlement isn’t the first Higher One has agreed to pay following concerns about how it does business. Last year, it agreed to pay $11 million to settle allegations by the Federal Deposit Insurance Corp. that it violated laws governing overdraft fees.
And the Consumer Financial Protection Bureau last month expressed concern over the contracts Higher One had forged with universities and colleges, and whether they benefited students at all.