Feds: Higher One used ‘deceptive’ tactics at Miami Dade College and elsewhere

Emblazoned with a glittering skyline and the Miami Dade College logo, the OneCard debit card has long been the way most MDC students receive their financial aid refunds — the money left over from Pell grants and loans after tuition has been paid.

“Your refunds are easier with the new MDC OneCard,” says the promotional material. Higher One, a campus card company, has been at MDC since 2006.

But for students who didn’t read the fine print, the MDC OneCard was a minefield of unusual — and critics say predatory — account fees.

Choosing the “debit” option when paying at a merchant? That carried a 50-cent-per-transaction fee. Withdrawing cash at a non-Higher One ATM? $2.50 per withdrawal (on top of the fee charged by the ATM machine). Haven’t used your card in six months? Get ready for an “Abandoned Account Fee” of up to $10 per month.

“It bothered me,” said MDC student Yanara Justo, 27, of Westchester. “Because that was my money, and I was getting charged just to use debit, I’ve never been charged that.”

Over the past three years, Justo said, she has been charged the debit fee about 40 times.

Connecticut-based Higher One says students can avoid this transaction fee by choosing the “credit” option when swiping their card — it’s accepted as a MasterCard that way. But Higher One’s customers are college students, who might be as young as 18 years old, and who might have little experience with banking in general.

Last month, just two days before Christmas, a pair of federal agencies announced that Higher One’s methods were improper, and the company would have to pay.

The Federal Reserve, which acts as the nation’s central bank, ordered Higher One to pay back roughly $24 million to students at schools nationwide, including Miami Dade College. About 570,000 U.S. students in total will receive money, which the Federal Reserve called restitution for Higher One’s “deceptive marketing practices.”

That same day, the Federal Deposit Insurance Corporation (FDIC) announced a settlement forcing Higher One to pay back $31 million to about 900,000 students. A bank that Higher One partnered with, Utah’s WEX Bank, is also on the hook for the $31 million.

The feds say Higher One’s “misleading” practices included prominent use of school logos, which suggested to students the accounts were endorsed by their school; Higher One’s failure to properly disclose its fees and Higher One’s failure to fully inform students of alternative ways they could receive their financial aid (such as direct deposit into their personal checking account, or simply getting a check mailed to them).

Justo said she has always had her own checking account, and never knew she could have avoided Higher One entirely.

“I thought that that was the only thing I could use, the MDC OneCard, that’s where your refund went to, and that’s it,” she said. Most of Justo’s classmates also chose Higher One — the company’s OneCard handles more than 80 percent of MDC students.

The millions that the feds ordered Higher One to refund nationwide are not a windfall for students: the $24 million penalty averages out to about $42 for each affected student, while the $31 million payout, which goes to more students, averages to less than $35 each. Students who had a Higher One card between mid-2012 and mid-2014 should be eligible for at least one of the refunds, and sometimes both. The money will be sent to them by check, or posted to their Higher One account if it’s still active.

It’s not yet known how soon the checks from Higher One will arrive, or how much of that money will flow to Florida students. In addition to MDC, Higher One has handled financial aid disbursements at the University of West Florida and at least six other Florida community colleges, including the College of Central Florida, Florida Southwestern State, and Florida State College at Jacksonville.

Some schools, such as the University of Miami and Florida International University, still process their financial aid in-house. Students get the option of a check or direct deposit to their personal bank account — with no unexpected fees.

Broward College President J. David Armstrong Jr. said Higher One approached his school about six or seven years ago, but he wasn’t interested.

“They aggressively lobbied and pitched their business to us, and we didn’t feel like it was a good model for students, and so we refused to do business with them,” Armstrong said. “I’m glad to see that finally the federal government has been able to take appropriate action against a company that’s made huge profits at the expense of students and taxpayers.”

Nationally, Higher One has card agreements with more than 500 campuses, accounting for over 4.3 million students, according to a 2012 report by the United States Public Interest Research Group, a consumer-advocacy nonprofit.

In an e-mail to the Herald, Higher One spokeswoman Shoba Lemoine said the company is being penalized for “past practices,” and that several of the account fees now being criticized were dropped “years ago.”

Higher One CEO Marc Sheinbaum, in a statement, said “After joining Higher One in 2014, I charged our team to set new standards for transparency and compliance.”

For cash-strapped community colleges, outsourcing the financial aid disbursements to Higher One saves money on employee administrative costs (MDC once told the Herald it saves at least $100,000 a year). Higher One has also sweetened MDC’s bottom line by donating $180,000 to the Miami Dade College Foundation, the school’s charitable arm.

MDC spokesman Juan Mendieta said students, too, benefit from Higher One.

“MDC has a large population, more than at most institutions, of students without bank accounts and Higher One offers them the opportunity of opening an account,” Mendieta wrote in an e-mail.

MDC’s support of Higher One comes despite its history of lawsuits and problems with regulators.

Back in 2014, Higher One agreed to pay $15 million to settle a class-action lawsuit filed by students, including a plaintiff from Florida. The suit alleged that Higher One’s activities violated federal regulations that mandate students be given access to their financial aid money without paying any fees.

“Once a student is locked into a Higher One account, he or she is then assessed unconscionable and unusual bank fees,” the lawsuit states. “These fees are charged to students who can afford them the least.”

Two years before that class-action settlement, Higher One settled for $11 million with the Federal Deposit Insurance Corporation. In that case, the FDIC found that Higher One had violated the Federal Trade Commission Act in the following ways: “charging student account holders multiple nonsufficient fund [NSF] fees from a single merchant transaction; 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.”

During the recession, Higher One enjoyed soaring profits — fueled in large part by the fees it assessed against taxpayer-funded financial aid disbursements.

The company posted nearly $145 million in revenues in 2010, the same year it became publicly traded on the New York Stock Exchange.

Company revenues were up to $220 million last year.

In November of 2012, the Herald published a story raising questions about the fees Higher One charged MDC students. MDC’s chief financial officer, E.H. Levering, defended Higher One at the time. Levering said Higher One was an improvement for students who lacked a bank account, and who were previously paying high fees at check-cashing stores.

“It’s a very nice starter bank account for an unbanked student,” Levering said. “We’ve done more than our due diligence.”

MDC’s contract with Higher One runs out next year. But the company has the legal right to renew it for another five years — unless MDC opts out in the next two months.

The updated list of MDC OneCard fees shows that the $10 account inactivity fee has been phased out. But the 50 cent charge for debit purchases is still there, as is the $2.50 ATM charge for out-of-network ATMs (which is any ATM located off campus).

There’s also a $25 per hour “account research fee” for students who ask questions about their transaction activity or account history. To avoid that charge, Higher One offers this advice to students:

“Keep copies of your account statements.”

This story was originally published January 2, 2016 at 7:19 PM with the headline "Feds: Higher One used ‘deceptive’ tactics at Miami Dade College and elsewhere."