AP NewsBreak:
Higher One to pay fine in fee probe

[July 21, 2012]  WASHINGTON (AP) -- Higher One Holdings Inc. is preparing to pay a fine to federal regulators investigating fees the company charged to college students who used its bank cards.

The company is near a deal with regulators that would end an 18-month investigation of overdraft fees charged between 2008 and 2011, according to two people with direct knowledge of the matter. The amount of the fine had not yet been finalized, the people said. They spoke on condition of anonymity because the agreement has not yet been signed.

Higher One markets bank cards and checking accounts to college students through exclusive deals with colleges and universities. Students who use its accounts sometimes pay fees to access their financial aid money.

The company has card agreements with 520 campuses that enroll 4.3 million students, according to a recent study from the U.S. Public Interest Research Group Education Fund, a student advocacy group. That's about one-fifth of the nation's higher-education students. Among the colleges that partner with Higher One are Liberty University, Miami Dade College, Texas Tech and Johns Hopkins University.

In May, Higher One said in a regulatory filing that it was working with the Federal Deposit Insurance Corp. to resolve the investigation. It said it had started refunding the fees in December 2011, and had finished returning $4.7 million to customers as of March 31.

The company has been criticized by student and consumer groups, who say students are pressured into using its products because they receive pitches on university letterhead and believe the accounts are university-approved. They say students should be encouraged to shop around for a less expensive banking option.

Some universities pocket a share of the fees that Higher One charges to their students. That gives them little reason to make sure students get the best deal possible, advocates say. Higher One says it has stopped signing new contracts that include revenue-sharing.

Higher One accounts carry more than a dozen fees, including $50 if an account is overdrawn for more than 45 days, $10 per month if the student stops using his account for six months, $29 to $38 for overdrawing an account with a recurring bill payment and 50 cents to use a PIN instead of a signature system at a retail store, according to its website.

The company also charges a $50 "lack of documentation fee" for students who fail to submit certain paperwork, the website says. The U.S. Department of Education called the charging of such fees "unallowable" in guidance to financial aid officers issued in April.

Students can opt out of the Higher One account and choose direct deposit or paper checks to receive their college aid, but relatively few do, according to the report from U.S. PIRG. The cards and accounts are marketed aggressively using college letterhead and websites carrying the endorsement of colleges. Higher One also warns students that it will take extra days if they choose direct deposit or a paper check.

A representative for Higher One declined to comment on the agreement with regulators. However, in an emailed interview in May, Higher One founder and Chief Operating Officer Miles Lasater said that the company takes compliance with government rules "very seriously," and officially swears that to the government each year.

"We are committed to providing good value accounts that are designed for college students," he said, and students must review the company's fee list when they sign up for an account. He cited a study commissioned by Higher One that declared Higher One "a low-cost provider for this market." The same study found that the median fees charged to the 2 million students with Higher One accounts totaled $49 annually.

Regulators told Higher One in February 2011 that it might face an enforcement action because of violations relating to its compliance system, and its policy of charging overdraft fees on accounts that were "seriously delinquent," according to the May filing.

The company believed that any additional costs were unlikely, the filing said.

An FDIC spokesman declined to comment, saying the FDIC makes public only actions against banks. Higher One partners with banks that hold customers deposits and issue cards on its behalf.

The FDIC typically oversees banks that hold deposits. It runs the insurance fund that guarantees people's bank deposits in case their bank fails.

The FDIC has authority over Higher One because of its close business relationships with banks that the FDIC regulates. During the period when the excess fees allegedly were charged, Higher One's cards were issued by The Bancorp Bank, which issues prepaid cards and holds deposits for non-bank financial companies.

Higher One fell 43 cents, or 3.6 percent, to close at $11.55 Friday. Shares had lost 35 percent of their value this year.

[Associated Press; By DANIEL WAGNER]

Daniel Wagner can be reached at http://twitter.com/wagnerreports.

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