State Regulators and
Federal Reserve Take Action Against Cole Taylor Bank
Bank to pay combined $4.11
million penalty for deceptive practices impacting nearly
440,000 students nationwide
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[July 08, 2014]
CHICAGO – The Illinois
Department of Financial and Professional Regulation (IDFPR),
working with the Federal Reserve System’s Board of
Governors issued an order on June 26, 2014, requiring
Cole Taylor Bank (“Cole Taylor”) to pay millions in
fines for participating in deceptive banking practices
through its agent, Higher One, Inc., of New Haven,
Connecticut (“Higher One”), impacting hundreds of
thousands of college students across the country.
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Under Cole Taylor’s oversight, Higher One engaged in deceptive
banking practices when processing student financial aid payments on
behalf of colleges and universities nationwide. From May 4, 2012 to
August 14, 2013, Cole Taylor provided deposit accounts in connection
with Higher One’s student financial aid refund disbursement process.
Cole Taylor failed to properly monitor Higher One’s activities which
resulted in unlawful banking practices. In a joint order, the IDFPR
and the Federal Reserve ordered Cole Taylor to pay a $600,000 fine
to IDFPR and a $3,510,000 civil money penalty to the Federal Reserve
– totaling $4.11million in penalties.
The Federal Reserve is pursuing remedial actions against Higher One,
which includes the payment of restitution for Higher One’s past
practices. In the event that Higher One cannot pay the restitution
amounts required by any Federal Reserve enforcement action, the
IDFPR and the Federal Reserve’s Order requires Cole Taylor to assume
backup liability of up to a maximum amount of $30 million.
“It is unconscionable for any company to seek profit by misleading
customers about the terms of their financial accounts,” said Manuel
Flores, Acting Secretary of the IDFPR. “Too many students and their
families end up with a massive burden of education debt, so it is
especially important to protect students from deceptive practices.
I’m gratified by our efforts to protect these students’ finances by
holding a bank accountable for its unlawful business conduct.”
“Holding Cole Taylor accountable and ensuring that the bank makes a
financial commitment to support restitution to these students should
send a clear message that we take this situation seriously,” said
Sheila Saegh Henretta, Acting Director of the Division of Banking.
“We will not tolerate any deceptive banking practices in Illinois.”
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Higher One is a non-bank entity that provides assistance to
institutions of higher education with financial aid payments for
students. The IDFPR and Federal Reserve found that Higher One and
Cole Taylor Bank misled students at various points in the financial
aid payment process, including by:
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Failing to disclose on all relevant documents
how students could access their financial aid payment without
having to open an online “OneAccount.” Higher One and Cole
Taylor Bank benefited from students directing their financial
aid payments to the OneAccount, instead of to an alternative
bank account or paper check. During the timeframe of IDFPR’s
consent order, approximately 440,000 new OneAccounts were opened
at Cole Taylor.
-
Failing to disclose the fees, features, and
limitations of the OneAccount. Higher One required unusual fees,
such as a 50-cent fee for not using the debit card as a credit
card and a fee of 3.5 percent for withdrawing cash at a bank
teller. Higher One earned income from all fees paid by students
in connection with the accounts. Cole Taylor received benefits
from holding and deploying the funds held in the non-interest
bearing accounts.
-
Failing to disclose information about the
locations of ATMs where students could access their OneAccounts
without incurring costs; and
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Prominently displaying the school logos, which
may have erroneously implied the schools endorsed the OneAccount
product.
In August of 2013, Cole Taylor ended its association
with Higher One. A copy of the IDFPR’s order is available on the
IDFPR’s website:
http://www.idfpr.com/Banks/CBT/
Enforcement/enforcement2014.asp To report suspected
unlawful banking or lending practices, call the IDFPR toll-free
Consumer Hotline at 800-532-8785.
[Text received; ANJALI JULKA,
ILLINOIS DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION] |