WASHINGTON – A Pennsylvania bank has agreed to a pay a civil penalty of almost $1 million for violations of the Federal Trade Commission Act.
Customers Bank will make the payment to the Board of Governors of the Federal Reserve System after a partnership it was entered into with Higher One Inc. was found to be in violation of Section 5 of the statute outlawing deceptive marketing and advertising practices.
New Haven, Connecticut-based Higher One specializes in providing financial aid disbursement services to college students, including a deposit account and debit card product known as the “OneAccount.” Since Higher One is not a bank, the financial services part of the arrangement between the two entities was handled by Customers.
Regulators contend that in August 2013, the partners began offering OneAccounts, only to quickly run afoul of the law based on the way students were misled into believing they could only obtain their financial aid disbursements by opening a OneAccount.
In addition to not being told about a number of other options, company officials also failed to inform students about persistent fees they would be slapped with and the limitations of the financial arrangements they had entered into, namely the limited hours of operations of ATM locations where they could access their accounts and conduct transactions without being charged still more fees.
"It is important that financial products offered to college students under the sponsorship of their universities are clear, transparent, and trustworthy," Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg said in a statement released to the Pennsylvania Record.
Over the period outlined in the suit, roughly 220,000 new OneAccounts were opened at Customers. In each of those resulting instances, regulators contend Higher One charged students a fee of 50 cents for using the debit card linked to their OneAccount for a point-of-sale purchase as well as a fee of 3.5 percent for withdrawing funds from a bank teller.
Late last year, the board ordered Higher One to pay restitution of roughly $24 million in fees to the more than 500,000 students who opened accounts with the company while the deceptive materials were prominently featured on the company’s website.
"Today's action holds both the bank and its student card partner accountable for the practices related to the products they offered to college students and provides restitution to those students harmed by these practices," Gruenberg added in the statement.
As part of its settlement, Customers also agreed to take “all action necessary to correct all violations of the FTC Act” and fully adhere to the statute. The bank is also prohibited from making any misleading or deceptive representations, statements, or omissions of any kind as it relates to marketing or advertising.
Customers recently purchased Higher One for $42 million in cash, with bank executives noting they had previously set aside a reserve of cash in anticipation of a monetary penalty for dealings involving Higher One prior to their acquisition being completed.
In a separate action, the Board of Governors of the Federal Reserve System also reached a settlement with Higher One related to its dealings with a state member bank.