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.