Assemblymember Frazier Takes Action to Protect Students From Unscrupulous Bank Fees

Thursday, February 20, 2014

Sacramento, CA - Assemblymember Jim Frazier (D - Oakley) introduced legislation today to protect students' financial aid from outrageous fees charged by financial institutions. Assembly Bill 1927 establishes basic guidelines that colleges can follow when outsourcing their financial aid distribution to financial firms.

As college budgets have shrunk, colleges have partnered with financial firms to disburse student financial aid - oftentimes in the form of debit and prepaid cards. While these partnerships can lower administrative costs for colleges and have the potential to be beneficial to students, their value has been called into question in instances where students end up bearing the cost directly through poor customer service and unnecessarily high fees that eat into their already limited financial aid.

"The lack of regulation at the federal level has forced me to take action to ensure that these agreements between colleges and financial institutions best serve the needs of students," said Assemblymember Frazier. "As a business owner I understand the importance of administrative costs savings, but not when it is placed on the backs of students."

A recent report by the United States Government Accountability Office (GAO) identified the nonbank financial firm Higher One as the dominant provider with 57 percent of the market share. Higher One has contracts with a number of the California Community Colleges and Districts, as well as a partnership with California State University Fresno to distribute financial aid, including CalGrants.

In a forum hosted by the Consumer Financial Protection Bureau (CFPB) to discuss these financial services and products marketed to college students, CFPB Director Richard Cordray stated, "I am concerned that some of our colleges and universities, whether well-intentioned or not, may be encouraging or even requiring our young people to use financial products that do not offer the best deals."

Unfortunately, Higher One charges 50-cents for transactions that use PINs rather than signatures, which is not common in any comparable financial product. According to the Federal Reserve, one-third of all PIN transactions are under $15 which make a 50-cent fee a significant portion of the transaction.

In August 2012, the Federal Deposit Insurance Corporation (FDIC) ordered Higher One to pay restitution of nearly $11 million to approximately 60,000 students for unfair and deceptive practices, and was obligated to pay $110,000 in civil penalties. Most recently in November 2013, Higher One entered an agreement to settle a class action lawsuit for $15 million. The lawsuit was initiated by students who claimed they were being charged excessive fees and were misled by marketing that inferred Higher One's product was the schools' preferred method of receiving financial aid.

"This proposal restricts fees from being charged to a student's financial aid and guarantees that taxpayer dollars are not being syphoned off by these contracted third parties," said Assemblymember Frazier. "College is already expensive enough and I don't want to see our students' financial aid nickeled and dimed by bank fees."

The GAO also reports that many concerns have been raised over revenue sharing agreements that may exist between colleges and contracted third-parties. Federal officials and consumer advocates question whether the payments or benefits that a college receives may encourage schools to choose a contract that provides the school the most revenue, as opposed to a contract that best serves the needs of the students.

"AB 1927 will ensure that the contract agreed to by the college and the financial institution protects the interests of students by eliminating any incentive for colleges to steer students into high cost debit cards," said Assemblymember Frazier. "The bill will also prohibit the cobranding of these debit cards with a college's mascot or logo. Cobranding can affect choice tremendously due to the fact that it can be seen by students as an endorsement or as the preferred product to receive their financial aid disbursement."

To contact Assemblymember Jim Frazier please visit his website at or call his District Offices at 707-399-3011 or 925-778-5790.

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CONTACT: Amy Warshauer, 916-319-2011