BILL ANALYSIS Ó
SB 595
Page 1
Date of Hearing: August 6, 2013
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
SB 595 (Calderon) - As Amended: April 22, 2013
SENATE VOTE : 39-0
SUBJECT : Postsecondary education: financial aid.
SUMMARY : Prohibits a California Community College (CCC) and
the California State University (CSU) from entering into a
contract on or after January 1, 2014, with any depository entity
that requires a student to open an account with that entity as a
condition of receiving his/her financial aid disbursement.
Specifically, this bill :
1)Requires CCC and CSU to offer a student the option of
receiving his/her financial aid disbursement via direct
deposit into an account at a depository institution of the
student's choice and requires that contracting entity be
required to initiate the direct deposit within one business
day of the receipt of the financial aid disbursement moneys
from the campus.
2)Requests all of the aforementioned provisions be adopted by
the each campus of the University of California (UC).
3)Provides for reimbursement to CCC if the Commission on State
Mandates determines that these requirements contain state
mandated local costs.
FISCAL EFFECT : Pursuant to Senate Rule 28.8, this bill was
determined to have no significant fiscal impact and was not
heard in the Senate Appropriations Committee.
COMMENTS : Current federal requirements . The U.S. Department of
Education (USDE) regulates the process and timelines for the
disbursement of Title IV Higher Education Act student aid funds.
Under USDE regulations, 34 CFR §668.164, institutions are
required to disburse funds through (1) the issuance of a check
to the student or parent, (2) initiating an electronic transfer
to a student/parent designated bank account, or (3) dispensing
cash under signed receipt from the student/parent. Institutions
are permitted to require students to provide bank account
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information, or open an account at a bank of the student's
choosing as long as the policy does not delay the disbursement
of funds. However, if a student does not comply with the
requirement, institutions must disburse funds through one of the
authorized alternative procedures. Institutions are permitted to
open a bank account on behalf of a student under specified rules
that require, among other provisions, student consent,
disclosure, adequate access to ATMs, and prohibitions on
marketing and conversion to credit accounts. These rules apply
to institutional disbursement of federal aid funds.
These requirements are not currently directly applicable to
California's student aid programs; however, according to the
California Student Aid Commission (CSAC) institutions generally
incorporate Cal Grant procedures into the institution's current
federal aid disbursement procedures. Thus, to the degree that
institutions are following federal requirements, institutions
are likely also utilizing these rules when disbursing Cal Grant
B Access or Cal Grant C Books & Supplies award funds.
Purpose of this bill . According to the author, banks and other
financial firms are creating partnerships with colleges and
universities to control the process of student aid
disbursements. The author notes that the functionality of these
partnerships allows students to access their funds in a suitable
time frame. However, the author argues that, in some of these
partnerships, students are required to open an account with the
bank or financial firm in order to receive their financial aid
funds. This bill would prohibit the campus, moving forward,
from entering into a contract with an entity that requires a
student open an account with that entity and would require the
student be offered the opportunity to receive the disbursement
via direct deposit within a 24 hour time frame from the
financial entity receiving the funds from the institution.
Debit card trap . In May of 2012, the U.S. PIRG Educational Fund
issued a report "The Campus Debit Card Trap: Are Bank
Partnerships Fair to Students?" evaluating the persistence and
effects of financial firm debit and prepaid card partnerships
with college campus on students. According to the report,
nationwide, of the 7,300 schools participating in the federal
aid system, nearly 900 colleges had card partnerships with
banks, including 32 of the 50 largest public 4-year
institutions, and 26 of the top 50 community colleges. Under
these partnerships, financial firms offer open-loop debit card
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accounts that allow a card to be used almost anywhere. The
benefit to the financial firm is the potential to recruit large
numbers of potentially long-term customers. Revenues to schools
resulting from these contracts can also be substantial.
Students, on the other hand, can pay steep and frequent fees
associated with using the university-adopted cards, including
swipe fees, inactivity fees, ATM fees and fees to reload prepaid
cards. The U.S. PIRG report makes several recommendations to
ensure that students are protected within campus debit card
programs, including recommendations to campuses, to students,
and to policymakers. The policymaker recommendations focus on
changes to USDE regulations and potential Consumer Financial
Protection Bureau actions.
Banking options . The first part of this bill requires CCC and
CSU to offer a student the option of receiving his/her financial
aid disbursement via direct deposit into an account at a
depository institution of the student's choosing. As previously
noted, students are currently provided this option under USDE
regulations. According to U.S. PIRG, USDE regulations are not
strongly enough enforced, and, because of marketing practices,
students often do not realize that they have a choice of where
to bank and which disbursement method to use. U.S. PIRG's
report includes recommendations to update and improve this
regulation. This bill, as currently drafted, codifies the
existing USDE regulation in California statute. This bill does
not contain provisions to address enforcement or marketing
standards of financial firms.
One-day disbursement . The second part of this bill specifies
that the contracting entity be required to "initiate" the direct
deposit within one business day of the receipt of the financial
aid disbursement moneys from the campus. According to the
author, this one business day requirement is intended to
implement a shorter turnaround time in making the funds
available to students. The author notes that some colleges take
weeks to disburse funds and in the meantime students are waiting
to purchase their books or pay for school necessities.
Committee staff notes that this bill does not directly impact
the timeline associated with college disbursement of financial
aid funds; unless, as a potential indirect result of this
legislation, institutions are encouraged to enter into contracts
with financial firms in order to meet the "one business day"
disbursement standard.
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Existing practices . According to the CCC Chancellor's Office,
41 CCC campuses use partnered vendors to distribute financial
aid funds to students and 71 CCC campuses have internal
processes for the disbursement of aid funds. According to CSU,
only one campus currently participates in a partnership for the
disbursement of financial aid funds. CSU notes that there are
many variables that can impact how quickly a student receives
their disbursement, including the volume of students receiving
aid and the time of year. CSU notes that there is some time
savings when financial institutions already have account
information available. For CSU campuses who directly distribute
funds for students, there may be a slight delay due to dealing
with multiple vendors or having to cut a paper check for a
student. While it is difficult to establish an exact time
frame, CSU indicates that, from the time of receipt of funds to
applying funds to the appropriate account, it may take a
financial institution 2-3 days to complete all of the necessary
requirements and it may take the campus 2-4 days. Committee
staff was unable to determine, prior to the publication of this
analysis, the relevant time frames for financial institutions.
According to the UC Office of the President, UC advances cash to
both state and federal financial aid recipients so that students
have access to funds when needed; UC then seeks reimbursement
from both federal and state financial aid sources. Therefore,
there is no time delay in disbursing funds to students. A
handful of UC campuses appear to use vendors for the purpose of
financial aid disbursement. According to UCOP, once funds are
in UC campus bank accounts funds are moved overnight, both when
where third party vendors are engaged to manage campus
disbursement and in cases where the campus manages such
disbursements without the assistance of a third-party vendor. UC
indicates that there is no significant difference in the timing
of the disbursements to students.
Related legislation . AB 1162 (Frazier) would have required the
CCC Board of Governors and the CSU Trustees, and request UC
Regents and the governing bodies of accredited private
postsecondary educational institutions to adopt policies to be
used to negotiate contracts with financial institutions. This
bill was approved by this committee on April 9, 2013, by a vote
of 9-1. The bill was heard in Senate Banking and Finance
Committee on July 3, 2013. The Committee analysis recommended
several amendments which were not accepted by the Author. The
bill failed passage by a vote of 2-3; reconsideration was
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granted.
Requested amendments . In a letter received by the Committee on
July 30, 2013, CALPIRG requests amendments to this bill to
incorporate the provisions of AB 1162, to require higher
education segments to adopt policies that result in contracts
with financial institutions that best serve the needs of
students. Specifically, CALPIRG notes that "earlier this year
we strongly supported AB 1162 (Frazier) and felt SB 595 was a
good supplement. With AB 1162 no longer moving forward, SB 595
on its own does not go far enough to address the biggest issues
students face with these contracts."
REGISTERED SUPPORT / OPPOSITION :
Support
California Bankers Association
California Credit Union League
CALPIRG
Student Senate for California Community Colleges
Opposition
None on File
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960