WASHINGTON – Higher One Holdings Inc. has agreed to return about $11 million to college students for overcharging them for fees on its debit cards and other practices, federal regulators said Wednesday.
The Federal Deposit Insurance Corp. said Higher One is also paying a $110,000 civil fine and agreed to change the way it imposes fees. In addition, the FDIC said that Bancorp Bank, which issued the OneAccount debit card administered by Higher One, is paying a $172,000 fine.
Higher One markets bank cards and checking accounts to students through exclusive deals with colleges and universities. Students who use its accounts sometimes pay fees to gain access to their financial aid money.
New Haven, Conn.-based Higher One violated federal law by charging students multiple fees for overdrawing funds for a single transaction, the FDIC said. The company also allowed debit accounts to remain in overdrawn status for long periods as overdraft fees piled up, and engaged in other deceptive practices, the agency said.
The money will be returned to about 60,000 students who were charged the fees between 2008 and 2011. It may take the form of credits to the accounts of current cardholders and charged-off accounts, or in checks when an account has been closed, the FDIC said.
Higher One and Bancorp Bank neither admitted nor denied legal liability.
Higher One said in a statement Wednesday that it began voluntarily refunding the fees in December 2011.
“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,” the company said.
Because it issued the debit cards, Bancorp Bank was obligated to ensure that Higher One complied with the law in operating the program, the FDIC said. Bancorp Bank agreed in a separate order to increase its oversight of legal compliance programs.
Bancorp Bank, an FDIC-insured institution based in Wilmington, Del., has terminated its relationship with Higher One. A spokesman for Bancorp Inc., the parent of Bancorp Bank, didn’t immediately return a telephone call seeking further comment.
Higher One has card agreements with 520 campuses that enroll 4.3 million students, according to a study by 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.
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.
“We commend the FDIC for holding Higher One accountable,” Rich Williams, higher education advocate for U.S. PIRG, said in a statement Wednesday. “Student aid should not be a piggy bank for banks to dip into, especially when their practices are unfair or deceptive.”
Higher One’s shares ended Wednesday down 38 cents, or 3.3 percent, at $11.13.