Card Issuer and Processor Overcharged Student Accounts: FDIC

Campus card provider Higher One has agreed to $11 million in restitution to settle claims by the Federal Deposit Insurance Corp. that it engaged in trade violations on a student debit card program it shared with The Bancorp Bank, the agency said Wednesday.

The FDIC alleged that Higher One — a New Haven, Conn., company handling financial aid disbursements — and the $4 billion-asset bank had charged students multiple nonsufficient-fund fees from single transactions, among other violations, while operating a program integrating their checking and debit-card accounts. The regulator accused the companies of "unfair and deceptive" practices, which are barred by the Federal Trade Commission Act.

"The Bancorp Bank, as issuer of the OneAccount debit card, was responsible to ensure that Higher One operated the OneAccount program in compliance with all applicable laws," the FDIC said in a press release.

As a part of the settlement, Higher One is required to change the way it collects non-sufficient funds fees — those that are accrued when a student runs out of cash on his card.

Among other terms, Higher One is barred from charging customers more than three such fees on any single day and it may not continue to pile fees on accounts that have had a "continuous negative balance" for more than 60 days. Higher One is also returning about $11 million to roughly 60,000 students, as well as paying a civil money penalty of $110,000.

The Bancorp Bank is paying $172,000 in penalties as a result of its involvement in Higher One's activities, and must improve its third-party risk management and board oversight. Should Higher One fail to pay its fines, Bancorp Bank is on the hook.

"Among other things, the FDIC found that Higher One and The Bancorp Bank were: charging student account holders multiple nonsufficient fund (NSF) fees from a single merchant transaction," the FDIC said in a press release. "Allowing these accounts to remain in overdrawn status over long periods of time, thus allowing NSF fees to continue accruing; and collecting the fees from subsequent deposits to the students' accounts, typically funds for tuition and other college expenses."

In a statement, Higher One chief executive Mark Volchek said the company had essentially met the requirements for the restitution payments through a voluntary process it started in December 2011 to credit certain NSF fees back to former customers.

"There are no new amounts in this announcement other than the civil money penalty, which we believe reflects how seriously we take our commitment to our customers, the degree of the issue and our swift resolution of it," Volchek said.

He added, "We have already voluntarily incorporated or are in the process of incorporating the FDIC suggested improvements to our policies for compliance management systems, past overdraft charging of persistently delinquent accounts, collections, and transaction error resolution."

Volchek said "the relatively low civil money penalty imposed reflects how seriously we take our commitment to our customers, the degree of the issue, and our level of cooperation with the FDIC."

The Bancorp Bank did not respond to a request for comment. Neither Higher One nor The Bancorp Bank admitted wrongdoing as part of the settlement.

Earlier this year, Higher One said it was phasing out its relationship with The Bancorp Bank and replacing it with a trio of partners, Urban Trust Bank, Wright Express Financial Services Corporation, and Cole Taylor Bank.

Allegations of gouging have dogged Higher One in the past.

This summer the U.S. Public Interest Research Group filed a report implying Higher One was unfairly charging students usurious fees. At the time, Higher One executives fired back and said that its fees were in line with an industry that regularly charges students for the privilege of attaching a payment card to a student ID.