Fed, FDIC Order 1.5 Million Students To Be Repaid For Unnecessary Fees

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.