Higher One Inc., which provides financial servicesÂ for colleges, will soon pay $11 million to 60,000 studentsÂ in a settlement. The financial institution has been accused of charging questionable service fees.
The company, based in New Haven, Conn., enables students to electronically keep track of their financial aid amounts, and extract funds by use of a debit card called the OneAccount card.
Upon each swipe or ATM use, Higher One charged students 50 cents per transaction fee, which diminishing the amount of the financial aid award that students rely on for tuition and other pertinent expenses.
Critics said Higher One charged students multiple fees for only one transaction, and allowed overdraft penalties to linger without notifying students.
This allowed the financial institution to continually tack on overdraft charges, which the Federal Deposit Insurance Corporation (FDIC) charged was deceptive.Â The government agency has since told Higher One it must present its rules and penalty fees in aÂ clearer and less deceptive way.
The consumer protection group US PIRG said the settlement should be a sign for other colleges that use Higher One, to fully understand what they're signing up for when hiring out these types of companies.
The advocacy group also said colleges should forbid any financial institution from charging service fees that ultimately diminish the financial aid amount, and take away the abilityÂ of students to make consistent tuition payments.
"Student aid should not be a piggy bank for banks to dip into especially when their practices are unfair or deceptive," said US PIRG rep Rich Williams. "We urge colleges to insist if they partner with Higher One or any other bank or firm to disburse financial aid or provide campus services, that contracts prohibit onerous fees and other unfair practices."
Higher One saidÂ it has students' best interest first in mind.
"We believe the relatively low civil money penalty imposed reflects how seriously we take our commitment to our customer, the degree of the issue, and our level of cooperation with FDIC," it said.
In addition Higher One will pay $110,000 on top of the $11 million, and Bancorp Bank, which provides the debit cards, will also pay $172,000 to students in the settlement.
Going forward, Higher One willÂ not charge penalties for accounts that have insufficient funds for more than a 60-day period.
Students who areÂ eligible for theÂ refund are those who started using the OneAccount cardÂ from July 16, 2008Â until the institution officially said it would stop charging suchÂ fees in December of 2011.
The settlement concludes ongoing complaints from colleges and students alike that have long accused Higher One of unfairly penalizing students by way of 12 different fees the institution uses.
And with college students being among the least financially stableÂ consumers, the penalty costs hits them harder than it would regular bank customers, who are more established, andÂ usually know more about bank costs, critics said.
Before the settlement was reached, Miles Lasater, Higher One's founder and CEO, said students should research and become familiar with all of the company's fees before using the card or taking out money.
Higher One also said it would waive $6 million in penalty fees that students owed the company before the FDIC stepped in. In addition to the settlement, the FDIC said Higher One will no longer charge more than three non-sufficient fund fees during one day.
Higher One has contracts with 520 campuses and service about 4.3 million students, according to a U.S PIRG report, entitled "The Campus Debit Card Trap."
The report focuses on the bad aspects of colleges and universities that outsource their financial aid management to institutions. It goes on to say while these types of agreements benefit the school by helping them manage funds, they often impact the student in a negative way.
What schools should do
The Campus Debit Card report also outlines what schools need to do to ensure their students aren't being taken advantage of by financial institutions. Like providing students with alternate banks to use that's not contracted by the school.
The report suggests that schools need to negotiate with banks and institutions to remove all debit card fees beforeÂ working withÂ them.
Also, if the school decides to use a company like Higher One, colleges shouldn't be advertising to students about the debit cards or any other services offered, the report said.
Marketing debit cards to students can lead them to make unnecessary commitments before researching other options, the report found.