--Higher One to refund $11 million to students
--FDIC alleges Higher One repeatedly charged debit-card
customers overdraft fees for the same transaction
--Company says it began voluntarily issuing refunds to customers
in December
(Updates with CEO comment in eighth paragraph.)
By Andrew R. Johnson and Alan Zibel
A company that markets debit cards to college students has
agreed to refund $11 million to 60,000 students to settle
allegations that it charged excessive fees.
The Federal Deposit Insurance Corp. said Wednesday that Higher
One Holdings Inc. (ONE) and its former partner, The Bancorp Bank,
engaged in unfair and deceptive behavior by repeatedly charging
college debit-card customers with overdraft fees on single
transactions and collecting fees from deposits made into their
accounts, typically funds for tuition and other college
expenses.
Under a consent order with the FDIC, Higher One must abstain
from charging "nonsufficient fund" fees on accounts that have had a
negative balance for more than 60 days and charging more than three
such fees on a single day per account, among other things.
Higher One's practices have been under fire from consumer
advocates who say the fees charged on its campus debit cards are
unfair.
The company contends its accounts are more affordable than those
offered by big banks, and it provides clear disclosures to
consumers who enroll in its products. The accounts allow students
to receive financial-aid refunds directly into the accounts, though
students can also choose to have funds deposited into other bank
accounts or receive a paper check.
Higher One offers its "OneAccount" to students at more than 520
campuses where its financial-aid disbursement platform is used. It
counted 2.1 million OneAccounts as of March 31, according to a
regulatory filing.
The FDIC said Higher One will make refunds to eligible customers
who used a OneAccount from July 16, 2008, to the time the company
stopped charging the overdraft fees. Bancorp Bank, a subsidiary of
Wilmington, Del.-based The Bancorp Inc. (TBBK), is also required to
pay refunds if Higher One fails to make payments.
Higher One has already refunded $4.7 million to customers since
December, when it began voluntarily crediting customers, Mark
Volchek, chief executive officer of the company, said in an
interview. The company says that the remaining amount represents
nonsufficient fund fees that it ultimately never assessed against
customers because it waived them or other reasons.
Higher One and The Bancorp Bank, which issued the accounts at
the time of the alleged offenses, also face fines of $110,000 and
$172,000, respectively.
Mr. Volchek said in a statement the company has already
completed policy improvements to its compliance management systems
and past overdraft practices as suggested by the FDIC.
"We immediately responded to these recommendations by
voluntarily discontinuing these practices and crediting back
account holders in December of 2011," Mr. Volchek said. "We believe
the low fine imposed reflects how seriously we take our commitment
to our customers, the degree of the issue and our swift resolution
of it, which impacted only about 1% of our customers."
Higher One has said it no longer charges insufficient-fund fees
for one-time debit-card transactions, and it does not offer an
overdraft program to customers.
Federal rules that took effect in 2010 require banks to obtain
customers' consent for overdraft programs for one-time debit-card
transactions.
A spokesman for Bancorp Bank couldn't immediately be reached for
comment.
Higher One's primary business is offering software platforms for
disbursing financial-aid and processing tuition payments for
colleges and universities. Students attending those schools receive
information about enrolling in its OneAccount as a way to receive
extra financial aid, though they also can receive their funds in a
different bank account or by paper check.
While Higher One is not a bank, its accounts are issued by bank
partners, such as Bancorp Bank.
Bancorp Bank said in a regulatory filing with the Securities and
Exchange Commission in May that it faced a probe by the FDIC over
overdraft practices involving a third party, though it didn't name
Higher One. Bancorp Bank ended its relationship with Higher One in
May, Mr. Volchek said.
The U.S. Public Interest Research Group in May released a report
on college debit cards, singling out Higher One as the largest
player in the market. It accused the company of not installing
enough ATMs on campuses where its accounts are offered, potentially
causing students to incur fees by using other companies' ATMs.
There are more than 900 debit-card partnerships between colleges
and banks and other financial firms, such as U.S. Bancorp (USB),
Wells Fargo & Co. (WFC) and SunTrust Banks Inc. (STI), the
group noted.
Higher One said last week it was eliminating some fees,
including those it charged when customers using certain Higher One
accounts used their personal identification number, or PIN, to make
a debit-card transaction.
Higher One's shares closed down 3.3% at $11.13. Bancorp's shares
closed down 2.2% at $9.28.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com and
Alan Zibel at alan.zibel@dowjones.com
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