BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 845
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          Date of Hearing:   June 10, 2014

                       ASSEMBLY COMMITTEE ON HIGHER EDUCATION
                                 Das Williams, Chair
                      SB 845 (Correa) - As Amended:  May 7, 2014

           SENATE VOTE  :   31-0
           
          SUBJECT  :   Postsecondary education: electronic disbursement of  
          student financial aid.

           SUMMARY  :   Requires the Board of Governors (BOG) of the  
          California Community Colleges (CCC) and the Trustees of the  
          California State University (CSU), and requests the Regents of  
          the University of California (UC) and the governing body of an  
          accredited private postsecondary educational institution, to  
          develop one or more model contracts and all binding contracts,  
          as specified, for use by their respective systems to disburse a  
          financial aid award, scholarship aid, campus-based aid award, or  
          school refunds onto debit cards, prepaid cards or other  
          preloaded cards issued by a financial institution, as specified,  
          and to post model and actual contracts on their respective  
          Internet Web sites.  Specifically,  this bill  :   

          1)Requires the CCC BOG and the CSU Trustees and requests the UC  
            Regents and each governing body of an accredited private  
            postsecondary educational institution to develop one or more  
            model contracts for use at their respective systems to  
            disburse a financial aid award, scholarship aid, campus-based  
            aid award, or school refunds onto debit, prepaid, or preloaded  
            cards issued by a financial institution; and, specifies that  
            each model contract shall be developed in consultation with  
            stakeholders including statewide student associations,  
            individual campuses, and finance institutions that issue debit  
            cards, prepaid cards, and preloaded cards and shall not be  
            finalized before public comment is sought and considered.

          2)Requires the BOG and the Trustees and requests the Regents and  
            each governing body of an accredited private postsecondary  
            educational institution to make every model contract, and  
            every binding contract negotiated by an educational  
            institution under the jurisdiction of one of these governing  
            bodies with a financial institution for the disbursement of a  
            financial aid award, scholarship, campus-based aid award, or  
            school refund onto a debit card, prepaid card, or preloaded  








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            cared, publicly available on its Internet Web site. 

          3)Specifies that every model contract developed shall consider  
            the best interests of the students and shall, at a minimum,  
            contain provisions that reflect conditions required for  
            compliance with federal regulations governing the disbursement  
            of federal financial aid.

          4)Requires the BOG and the Trustees and requests the Regents and  
            each governing body of an accredited private postsecondary  
            educational institution to consider all of the following when  
            developing each model contract:

             a)   The number of on-campus locations and proximity of  
               off-campus locations where a fee-free withdrawal can be  
               made by a student using a debit/prepaid/preloaded card;

             b)   The type and size of fees a student would incur from  
               debit/prepaid/preload card usage and whether provisions of  
               the model contract ensure that the educational institution  
               is provided information by the card-issuing financial  
               institution to evaluate the costs of these fees to  
               students;

             c)   The impact, if any, that offering a card displaying the  
               name or mascot of a campus or educational system would have  
               on students, their campus, or their educational system;

             d)   Whether provisions of the model contract ensure that the  
               educational institution monitors compliance by the  
               financial institution with federal Title IV requirements  
               governing the disbursement of financial aid;

             e)   Whether provisions of the model contract ensure a  
               process to track and resolve student complaints about the  
               card-issuing financial institution's credit delivery,  
               customer service, and debit/prepaid/preloaded cards;

             f)   The impact, if any, of the content of a dispute  
               resolution clause on students, their campus, and their  
               educational system, if a conflict were to arise between a  
               student and the card-issuing financial institution;

             g)   Whether provisions of the model contract ensure that the  
               educational institution does not disclose student  








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               information to the card-issuing financial institution  
               beyond what is necessary for that institution to perform  
               the contracted financial aid award, scholarship,  
               campus-based aid award, or school refund disbursement  
               function; and,

             h)   Whether provisions of the model contract ensure that the  
               card-issuing financial institution does not solicit or  
               collect information from a student that is not necessary to  
               perform the contracted financial aid award, scholarship,  
               campus-based aid award, or school refund disbursement  
               function, as a condition of allowing the student to access  
               financial aid award, scholarship, campus-based aid award,  
               or school refund through a debit/prepaid/preloaded card

           EXISTING LAW  : 

          1)Establishes rules (via federal regulations) for the  
            disbursement of federal financial aid to students.  Said rules  
            authorize a school to establish a policy requiring its  
            students to provide bank account information, or open an  
            account at a bank of their choosing as long as this policy  
            does not delay the disbursement of federal student aid funds  
            to students.  Should a school open a bank account on behalf of  
            the student, the rules require that schools comply with  
            conditions related to consent, notice, disclosure and costs to  
            open or transact on the account and additionally require that  
            the school ensure that the student has convenient access to a  
            branch office or ATMs of the bank so that the student does not  
            incur any cost in making cash withdrawals.  Additionally, the  
            regulations require that the branch office or ATMs be located  
            on the institution's campus, in institutionally-owned or  
            operated facilities, or immediately adjacent to and accessible  
            from the campus.  These rules also include conditions that  
            must be met if a school uses a store value card or prepaid  
            debit card (34 Code of Federal Regulations (CFR) §  
            668.164(c)(3)).

          2)Allows schools to contract with servicers for the  
            administration of any aspect of the school's participation in  
            Title IV programs and specifies that a school may accept the  
            standard contract terms and conditions in a servicer's  
            proposal for delivering credit balances or negotiate the terms  
            and conditions to meet the specific needs of the school or its  
            students (34 CFR § 668.25).








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          3)Defines the term "debit card" as an accepted card or other  
            means of access to a debit cardholder's account that may be  
            used to initiate electronic funds transfers and may be used  
            without unique identifying information such as a personal  
            identification number to initiate access to the debit  
            cardholder's account (Civil Code [CIV] § 1748.30).

          4)Limits a debit cardholder's liability for unauthorized use of  
            a debit card (CIV § 1748.31).

          5)Provides for a variety of student financial aid programs  
            including the Cal Grant programs and the CCC Board of  
            Governors fee waiver program.  Current law requires that  
            eligibility for a Cal Grant and the determination of financial  
            need be accomplished using the Free Application for Federal  
            Student Aid (FAFSA), and that this application be used for all  
            programs funded by the state or a public institution of  
            post-secondary education as well as all federal programs  
            administered by a postsecondary educational institution.   
            Current law makes an exception to this requirement for the BOG  
            fee waiver program which is authorized to use a simplified  
            application designed for that sole purpose (Education Code §  
            69432.9 and § 69433).

           FISCAL EFFECT :   According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, this bill has a  
          negligible fiscal impact.

           COMMENTS  :    Background  .  When students receive financial aid,  
          whether it is in the form of a scholarship, grant, or student  
          loan, schools apply that money to college costs then disburse  
          the rest to the student.   Instead of disbursing remaining aid  
          funds by check, many campuses are funding financial aid awards  
          through special debit cards that sometimes double as student  
          identification cards. 

          Recent reports and media attention have raised concerns about  
          whether the terms and conditions of the debit cards that  
          servicers use to deliver financial aid credit balances to  
          students are in the best interest of students.

           Title IV  .  Title IV of the Higher Education Act of 1965, as  
          amended, authorizes various programs that provide financial aid  
          to eligible postsecondary students enrolled in eligible programs  








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          at participating schools.  Federal Student Aid, an Office of the  
          U. S. Department of Education (USDE), is responsible for  
          administering the Title IV programs, including overseeing the  
          activities carried out by schools, servicers and other entities  
          involved in administering the programs.  The Title IV programs  
          include a variety of loans, grants and Federal Work-Study.

           Need for the bill  .  According to the author, "One of the  
          challenges facing students and policymakers at the present time  
          is the highly individualized approach taken by California  
          campuses toward the contracts they enter into with financial  
          institutions for the disbursement of financial aid, scholarship  
          aid, campus-based aid, and school refunds onto  
          debit/prepaid/preloaded cards.  Several of these contracts have  
          been criticized for failing to uphold the best interests of  
          students, yet, to date, no public or private higher educational  
          system in California has stepped in to provide guidance or  
          assistance to the individual campuses that are negotiating these  
          card contracts."  The author contends that this bill would give  
          the state's public and private higher educational systems  
          responsibility for developing model contracts for use by the  
          campuses within their systems.

          According to a May 2012 U. S. Public Interest Research Group  
          (PIRG) Educational Fund report entitled, "The Campus Debit Card  
          Trap:  Are Bank Partnerships Fair to Students?" - issuing debit  
          cards for disbursing funds may be good for colleges, but the  
          study argues that cash-strapped students absorb the costs.  The  
          PIRG study finds that some debit cards come with transaction  
          fees as high as 50 cents per swipe, $38.00 per overdraft and  
          $10.00 for inactivity after six months without use.  The PIRG  
          study also finds that students do not fully realize what they  
          are signing up for when they elect to receive their financial  
          aid award via debit card.  Additionally, the PRIG study finds  
          that debit card contracts have been controversial at some  
          postsecondary campuses; and that it is hard to obtain contracts  
          between the postsecondary institutions and the banks and other  
          financial institutions when seeking to disburse students'  
          financial aid awards via debit cards.  

           Recent federal actions  .  The USDE Office of Inspector General  
          March 2014 report entitled, "Third-Party Servicer Use of Debit  
          Cards to Deliver Title IV Funds," reveals their findings  
          regarding the use of debit cards to deliver Title IV funds to  
          students.  The objectives of their review was to:  1) identify  








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          the methods, terms and conditions, and time frames for  
          delivering Title IV funds to students; 2) determine what  
          personal student information is provided by schools or collected  
          by servicers during the Title IV funds delivery process; 3)  
          identify school and servicer procedures for addressing student  
          complaints about the use of debit cards to deliver Title IV  
          funds; and, 4) determine how FSA monitors schools' and  
          servicers' delivery of Title IV funds through the use of debit  
          cards to protect students from inappropriate practices. The  
          Inspector General determined that the USDE needs to take action  
          to better ensure that the interests of students are being served  
          when schools use servicers to deliver credit balances. 

          The Inspector General's report was released during the time that  
          the USDE was considering new debit card rules as part of a  
          wide-ranging rule making session on federal student aid.  

          The U. S. Government Accountability Office (GAO) issued a report  
          in February 2014, entitled, "College Debit Cards - Actions  
          Needed to Address ATM Access, Student Choice and Transparency"  
          and found that at least 852 schools, or 11% of U.S. colleges and  
          universities, have agreements to provide debit or prepaid card  
          services to their students as of July 2013, and most offered  
          students the ability to receive federal student aid and other  
          payments on a card.  These schools were disproportionately  
          large; their enrollments constituted about 40% of all  
          postsecondary students.  However, the percentage of students  
          enrolled in their schools' college card programs was unknown.   
          The GAO report also found that in the majority of agreements,  
          the schools also outsourced to their card provider the process  
          for paying financial aid and other funds via college cards and  
          other methods.  Some schools also used college cards as student  
          identification.  Additionally, although schools cannot require  
          students to use college cards, the GAO report raised concerns  
          about the extent to which students have been able to make fully  
          informed choices about whether to enroll in the debit or prepaid  
          cards their schools offer. The GAO report contends that  
          educational guidance on college cards does not currently address  
          the marketing of the cards or the extent to which schools must  
          inform students about financial aid payment options, although  
          schools are required to inform students of the terms and  
          conditions of college cards before an account is opened.

          Last fall, USDE issued its Notice of Proposed Rulemaking in  
          order to create a negotiated rulemaking committee and tasked the  








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          committee to review many elements of student financial aid,  
          including, but not limited to, the cash management of funds  
          provided under Title IV programs, including the use of debit  
          cards and the handling of Title IV credit balances.  

          The committee was formed and met four times this year (February,  
          March, April, and May) to listen, discuss, review, and negotiate  
          the proposed draft regulatory language provided by the USDE.    
          During the last meeting, the rule making committee failed to  
          reach consensus on the issue of campus debit cards; as such, the  
          USDE is now able to propose whatever regulatory language it sees  
          fit without going through another rule making committee process.

           Related legislation  .  AB 1162 (Frazier), which failed passage in  
          the Senate Banking and Financial Institutions Committee on July  
          3, 2013, would have required the BOG and the Trustees and  
          request the Regents and the governing bodies of accredited  
          private nonprofit and for-profit postsecondary educational  
          institutions to adopt policies to be used for negotiating  
          contracts between their institutions and banks and other  
          financial institutions to disburse students' aid awards and  
          other refunds onto debit/prepaid/preloaded cards.

          AB 1927 (Frazier), which is scheduled to be heard in the Senate  
          Education Committee on June 11, 2014, is similar in nature to AB  
          1162 (as described above).

          SB 595 (Ron Calderon), Chapter 217, Statutes of 2013, which  
          among many, prohibited any CCC campus or CSU campus from  
          entering into a contract with any entity on or after January 1,  
          2014, that requires students to open an account with the entity  
          as a condition of the student receiving a financial aid  
          disbursement; the UC was also asked to comply with the  
          provisions of the bill.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Bankers Association 
          California Communities United Institute
          California State Student Association
          Community College League of California
          Higher One
          University of California Student Association 








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            Opposition 
           
          None on file.

           
          Analysis Prepared by  :    Jeanice Warden / HIGHER ED. / (916)  
          319-3960