Fed, FDIC Order Higher One to Repay 1.5 Million Students

  • Company faces penalties from Fed and FDIC for practices
  • Fed: No tolerance for deceptive marketing to students on loans

The Federal Reserve and Federal Deposit Insurance Corp. fined financial services provider Higher One Inc. for misleading almost 1.5 million students into paying unnecessary fees to access their financial aid, marking the latest official effort to crack down on unfair practices on America’s college campuses.

Around 570,000 students who opened accounts with Higher One during a period when the company’s website and marketing materials were judged deceptive will receive restitution of fees totaling $24 million, the Fed said Wednesday, and the New Haven, Connecticut-based company must pay a civil penalty of $2.23 million. In a separate statement, the FDIC said Higher One and WEX Bank in Utah, which worked with the company, will be fined and together have to pay $31 million in restitution to a further 900,000 people.

“Deceptive marketing practices with respect to student loans will not be tolerated,” Fed Governor Lael Brainard said in the central bank’s statement. “This action ensures that students who were misled into paying fees to access their financial aid funds will receive restitution for those fees.”

The actions come at a time when the U.S. Department of Education is taking steps to protect students from exploitation, issuing regulations aimed at ensuring they can freely choose how to receive Federal aid refunds, get objective disbursement options and aren’t forced to pay excessive fees. The action follows a proliferation of campus debit and prepaid cards offered to students in exchange for monetary benefits to schools, the department says.

Higher One provides colleges and universities with financial-aid disbursement services for students. It distributes money that students could use for things like books, supplies and living expenses after payment of tuition and expenses owed directly to the school, according to the FDIC. Its so-called OneAccount, which students use to access the funds, is a debit card that is offered in partnership with financial institutions.

New Chapter

Chief Executive Officer Marc Sheinbaum, who joined Higher One in 2014, said in a statement Wednesday that “product and service changes have already been completed to comply with a significant portion of the issues raised, which mostly relate to practices ended in 2013.” He added that following the sale of the disbursements and OneAccount businesses, “we’re bringing this longstanding matter to a close and look to begin a new chapter for Higher One.”

Higher One Holdings Inc. announced on Dec. 15 that it will sell substantially all of the assets and certain liabilities of its disbursements business, including OneAccount, to Customers Bank for $37 million. The company provided refund management services on more than 800 campuses and serviced around 2 million OneAccounts, according to its Sept. 30 filing with the Securities and Exchange Commission.

Omitted Information

The Fed said Higher One omitted information about how students could get financial aid disbursement without having to open a OneAccount, about its products’ fees, features, and limitations, and about the availability of automated teller machines where students could access financial-aid disbursements for free.

The company also prominently displayed school logos, suggesting the institutions endorsed the product, according to the Fed’s release.

“Student debt is already a big burden, and these illegal practices just added insult to injury,” said Rohit Chopra, senior fellow at the Center for American Progress and former student-loan ombudsman at the Consumer Financial Protection Bureau. “Higher One was the big fish in the market,” and “this market has really been cleaned up now.”

Students who opened a OneAccount at Cole Taylor Bank of Chicago or Customers Bank of Phoenixville, Pennsylvania, from May 4, 2012, through December 19, 2013, will be reimbursed for the fees related to the deceptive practices, according to the Fed release.

The central bank took action against Cole Taylor Bank in June 2014 and is pursuing action against Customers Bank, the statement says. The FDIC order requires Higher One to pay a civil penalty of $2.23 million and WEX Bank to pay $1.75 million, separate from the Fed’s penalty, in addition to their restitution to students.

Customers Bancorp Inc., parent of Customers Bank, considered the actions that were expected to be taken against Higher One in performing due diligence on the purchase of the business from Higher One, Chief Financial Officer Robert Wahlman said in a phone interview. The company expects all known regulatory issues to be concluded prior to completing the transaction, he said, without commenting on the Fed’s potential action.

MB Financial Bank, which acquired Cole Taylor’s holding company last year, declined to comment, said the bank’s investor relations contact Berry Allen. WEX Bank officials did not immediately respond to requests for comment.

“It is important that financial products offered to college students under the sponsorship of their universities are clear, transparent, and trustworthy,” FDIC Chairman Martin J. Gruenberg said in a statement.

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