The Federal Deposit Insurance Corp. (FDIC) has entered into two settlement agreements with WEX Bank, and its affiliate, Higher One, Inc., regarding its allegations that the companies committed deceptive practices under Section 5 of the Federal Trade Commission (FTC) Act, which governs “unfair or deceptive acts or practices” (UDAP).
Higher One provides colleges and universities with financial aid disbursement services for students. After students pay tuition and other expenses owed directly to the school, the remaining financial aid – such as money for books, supplies and housing – can be disbursed to students through the debit card. WEX Bank has offered OneAccount since May 4, 2012.
The FDIC had alleged that Higher One’s website and associated materials, which had been approved by WEX Bank, omitted material facts about certain fees, features and limitations regarding its OneAccount debit card.
The alleged omissions included details about other disbursement methods available to students, a full and complete fee schedule and the availability of fee-free ATMs. As a result of these material omissions, the FDIC concluded, Higher One improperly collected $31 million in fees from students from May 4, 2012, to July 15, 2014, the period covered by the enforcement action.
WEX Bank and Higher One neither admitted nor denied the FDIC’s findings but, under the settlement agreements, will pay $1.75 million and $2.23 million civil money penalties, respectively. Together, the companies also will pay total restitution of approximately $31 million to an estimated 900,000 harmed consumers.
"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. "[The Dec. 23, 2015] action holds both the bank and its student card partner accountable for the practices related to the products they offered to college students and provides restitution to those students harmed by these practices."
The FDIC’s announcement of the settlements came just a week after the Consumer Financial Protection Bureau (CFPB) issued a warning letter to 17 colleges directing them to improve the disclosures of school-sponsored credit card agreements.
Under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, issuers are required to disclose to the CFPB the terms and conditions of any college credit card agreement, the number of new credit card accounts and the compensation paid by issuers to institutions of higher education in the previous year. The CFPB incorporates this information into an annual report to Congress.
The schools that received the letter did so because their credit card agreements “could not be publicly obtained using reasonable procedures and in a reasonable timeframe.”
The CFPB made it clear that it believes the “least burdensome and most straightforward means of complying with federal law” for colleges is to publish “any relevant credit card agreement on their website or by making it available free of charge upon request using reasonable procedures and in a reasonable timeframe.
“In recent months, the bureau has been seeking to assess compliance with the CARD Act transparency requirements. We have found that certain methods, such as making the agreements available upon request, put schools at risk of violating the law; indeed, the majority of colleges and universities in our sample that purported to employ that method failed to provide the agreements when requested,” the letter stated. “On the other hand, the specified approach of simply publishing the agreement on the website is proving to be the least burdensome and most straightforward means of complying with federal law.”
According to the CFPB college credit card agreements report, the CFPB found that college credit card agreement had continued to decline from 1,045 effective agreements in 2009 to only 272 agreements by the end of 2014. College debit and prepaid card agreements were found to be more common than credit cards.
“According to a report from the Government Accountability Office, there were at least 852 schools that had agreements with companies to market debit or prepaid cards to students in 2013. Unlike credit cards, historically, these products have not had specific federal requirements to disclose their marketing partnerships. The CFPB has previously identified agreements where financial institutions offer royalty payments for use of college trademarks or bonuses based on the number of student account sign-ups,” the CFPB stated in a news release.
The CFPB concluded that, despite the ongoing decline in credit card agreements, 40 percent of students attended a school that has made a deal with a financial institution where the college helps with or allows the promotion of debit or prepaid cards.
Noting the shift from college-sponsored credit cards to debit and prepaid arrangements, the CFPB also announced its Safe Student Account Toolkit to “help colleges evaluate whether to co-sponsor a prepaid or checking account with a financial institution.”
Colleges that use this toolkit can evaluate account features, consumer protections, marketing practices and contract transparency.
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