BILL ANALYSIS Ó SB 845 Page 1 Date of Hearing: June 18, 2014 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair SB 845 (Correa) - As Amended: May 7, 2014 Policy Committee: Higher EducationVote:11-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill requires the governing boards of the California State University (CSU) and the California Community Colleges (CCC) and requests the governing boards of the University of California (UC) and accredited private postsecondary educational institutions to develop model contracts for the disbursement within their respective systems of student financial aid through debit cards or credit cards. Specifically, this bill: 1)Requires the model contracts to be developed in consultation with stakeholders and requires solicitation and consideration of public comment prior to finalizing the contracts. 2)Requires that the governing boards require every model contract and every related binding contract negotiated by an institution under a board's jurisdiction to be available online. 3)Requires every model contract to consider the best interest of students and, at a minimum, to include provisions reflecting conditions required for compliance with federal regulations governing disbursement of federal financial aid and to consider other specified elements. FISCAL EFFECT Minor and absorbable costs for the governing boards of the CSU, CCC and UC to adopt the model contracts, and to post these and related contracts on their respective websites. COMMENTS SB 845 Page 2 1)Background . When students receive financial aid, whether in the form of a scholarship, grant, or student loan, schools apply that money first to cover tuition and fees then disburse the rest to the student. Many campuses are providing this disbursement 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. According to a May 2012 U. S. Public Interest Research Group (PIRG) Educational Fund report, 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. Reports on this topic have also been issued this year by the U.S. Department of Education's (USDE's) Office of Inspector General and by the U.S. Government Accountability Office (GAO). Last fall, the USDE commenced a negotiated rule making process to expand the rules governing disbursement of financial aid via debit cards. Following four meetings, the rule-making committee failed to reach consensus; as such, the department is now able to propose whatever regulatory language it sees fit without going through another rule making process. 2)Purpose . According to the author, several of the contracts entered into by individual campuses for financial aid disbursement have been criticized for failing to uphold the best interests of students, yet none of the systems have stepped in to provide guidance or assistance to their campuses in this regard. This bill therefore requires, or requests as appropriate, that governing boards develop model contracts for use by the campuses within their systems. 3)Related Legislation . AB 1927 (Frazier), pending in Senate Banking and Finance, is similar to this bill, but requires the governing boards to adopt policies containing specified elements. 4)Prior Legislation . In 2013, AB 1162 (Frazier), which was SB 845 Page 3 similar to AB 1927, failed in Senate Banking and Finance. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081