Higher One Holdings, a company that markets debit cards to college students, has agreed to pay out $11 million to 60,000 students in a settlement following allegations that the company charged students excessive fees.
The Federal Deposit Insurance Corp. said on Wednesday that the company and its former partner, The Bancorp Bank, engaged in unfair practices by charging multiple overdraft fees on a single transaction and then collected fees on account deposits, NASDAQ reports.
Per a consent order issued by the FDIC, Higher One is no longer allowed to charge insufficient fund fees on accounts that have maintained a negative balance for more than 60 days. Additionally, the company is prohibited from charging more than three such fees to an account on any given day.
Consumer watchdogs maintain that the institution’s practices are unfair, though Higher One argues that its accounts are more affordable than those offered by larger financial institutions, adding that it provides students with clear disclosure forms detailing the fees. The accounts offered by Higher One allow students to receive financial aid refunds directly, while students may opt to transfer those funds to another bank account or to receive a check, according to NASDAQ.
The FDIC said that refunds will be available to eligible customers who used a Higher One account beginning July 16, 2008, until the time when the company stopped charging the fees. Should Higher One fail to make any payments, Bancorp Bank will be required to pay the refunds.
Mark Volchek, the CEO of Higher One, said that the institution began issuing refunds in December, adding that the company has already begun to institute policy improvements to its overdraft practices and compliance management systems as suggested by the FDIC.
Both Higher One and Bancorp Bank could be subject to respective fines of $110,000 and $172,000.
“We immediately responded to these recommendations by voluntarily discontinuing these practices and crediting back account holders in December of 2011,” Volchek said, NASDAQ reports. “We believe the low fine imposed reflects how seriously we take our commitment to our customers, the degree of the issue and our swift resolution of it, which impacted only about [one percent] of our customers.”
Higher One said that the company no longer charges insufficient funds fees for one-time debit transactions and does not offer an overdraft program for customers.