Debit card provider settles students' claims of excessive fees

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Case in Point

December 3, 2013

Debit card provider settles students' claims of excessive fees 

The plaintiffs alleged breaches of contract and the implied covenant of good faith and fair dealing, rescission, conversion, and violations of state unfair and deceptive trade practices acts. The defendant agreed to settle for $15 million. In re: Higher One OneAcct. Mktg. & Sales Pracs. Litig.

Higher One Holdings, Inc., partners with about 500 universities and colleges to provide checking and debit services to students through various banks. After the schools deduct tuition and fees from students’ financial aid, they automatically deposit the remainder, to be used for books and living expenses, into a Higher One account. Higher One opens an account for the students and sends them debit cards stamped with the school logo that they have to activate to receive their financial aid benefits. Many students believe the school requires that they use Higher One.

When students visit Higher One’s website to activate their cards, they are given three options for distribution: They can choose to remain with Higher One and have immediate access to their funds; they can opt for a direct deposit at another bank, which requires that they mail in a form and allow at least a week for processing; or they can request a paper check, which takes about a month to process. The only way to access the funds immediately is to keep the Higher One account, which almost 80 percent of the students do.

Students are not given account holder agreements or fee disclosures until they have accepted a Higher One account. The fee schedule is buried through several clicks on the website and does not disclose that Higher One will charge a $2.50 fee for all withdrawals at non-Higher One ATMs, in addition to the fee charged by the bank that owns the machine. Higher One has only 600 ATMs across the country, and many of those are inside school facilities that are closed at night, on weekends, and on holidays. The machines also frequently run out of money during peak times, like the beginning of the school year, forcing students to use non-Higher One machines.

Finally, Higher One reserves the right to authorize overdraft transactions and charge a $29 overdraft fee, rather than rejecting the purchase.

Several Higher One account holders filed class actions in various states against Higher One and two of its partner banks, alleging breaches of contract and the implied covenant of good faith and fair dealing, rescission, conversion, and violations of the states’ unfair and deceptive trade practices acts.

The plaintiffs also claimed that the defendants violated public policy as established by Department of Education regulations, which prohibit entities from charging fees for delivering financial aid funds, opening accounts without authorization, and converting an account or card into a credit card. Federal law also requires that student loans be used to cover only education-related expenses, not bank fees, and prohibits companies from forcing consumers to open an account with a particular financial institution as a condition for receiving government benefits, which many student loans are.

The cases were consolidated in MDL in Connecticut.

Higher One agreed to settle for $15 million.

Citation: In re: Higher One OneAcct. Mktg. & Sales Pracs. Litig., No. 3:12-md-02407 (D. Conn. Nov. 4, 2013).

Plaintiff counsel: AAJ member Jeffrey D. Kaliel and Hassan A. Zavareei, both of Washington, D.C.; AAJ member Diandra Debrosse, Hoover, Ala.; AAJ members Jasper Ward and Alex Davis, both of Louisville, Ky.; and James E. Miller and Karen M. Leser-Grenon, both of Chester, Conn.


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