BILL ANALYSIS �
AB 1162
Page 1
Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
AB 1162 (Frazier) - As Amended: April 1, 2013
SUBJECT : Student financial aid: debit cards.
SUMMARY : Requires the Board of Trustees of the California
State University (CSU) and the Board of Governors of the
California Community Colleges (CCC) and requests the Regents of
the University of California (UC) and the governing bodies of
accredited private non-profit postsecondary institutions, to
adopt policies for negotiating contracts between their
postsecondary educational institutions and banks and other
financial institutions to disburse students' financial aid
awards and other refunds onto a debit card, prepaid card, or a
preloaded card. Specifically, this bill :
1)Requires the Board of Trustees (BOT) of the CSU and the Board
of Governors (BOG) of the CCC and requests the Regents of the
UC and the governing bodies of accredited private non-profit
postsecondary institutions, to adopt policies for negotiating
contracts between their postsecondary educational institutions
and banks and other financial institutions to disburse
students' financial aid awards and other refunds onto a debit
card, prepaid card or a preloaded card.
2)Requires the policies created by CSU BOT and BOG of the CCC
and requests the polices created by the Regents of the UC and
the governing bodies of accredited private non-profit
postsecondary institutions, to best serve the needs of the
students; encouraging all four segments to include the
following in their policies:
a) Provides students clear and unbiased choices as to where
to bank by ensuring that students can elect to receive
their financial aid award and other refunds through their
own existing bank accounts or by way of a paper check;
b) Ensures students are not subjected to paperwork that
attempts to direct them to banking options favored by the
bank or financial institution with which the institution is
partnering;
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c) Requires at least one fee free automated teller machine
(ATM) to be located on a participating campus and satellite
campus;
d) Requires an additional ATM for every 3,000 students
enrolled at which a student may use his/her debit card,
prepaid card or preloaded card in order to access his/her
financial aid award and other refunds;
e) Prohibits the debit card, prepaid cards or preloaded
cards from imposing the following fees on students,
including, but not limited to:
i) Insufficient fund fees at ATMs or point of sale,
ii) Account balance inquiry fees,
iii) PIN-based transaction fees,
iv) Inactive account fees,
v) Replacement card fees,
vi) Transfer or wire fees,
vii) Dispute fees, and,
viii) Account wire fees.
f) Requires all debit card, prepaid card or preloaded card
fees to be prominently displayed on the partnering or
financial institution's Web site and/or have the
information mailed to students;
g) Prohibits the debit cards, prepaid cards or preloaded
cards from including the logo of the postsecondary
educational institution;
h) Requires the debit cards, prepaid cards or preloaded
cards to include the same level of consumer protections
that are provided to ATM customers under the federal
Electronic Fund Transfer Act, 15 U.S. C. 1601 et seq., as
it exists on January 1, 2014; and,
i) Prohibits debit card, prepaid card or preloaded card
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contracts from including mandatory arbitration clauses.
EXISTING LAW :
1)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).
2)Limits a debit cardholder's liability for unauthorized use of
a debit card (CIV � 1748.31).
3)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 : Unknown
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 aid refunds by
check, many campuses are funding financial aid awards through
special debit cards that sometimes double as student
identification cards.
Need for the bill . According to the author, colleges and
universities are outsourcing their student financial aid
distribution to banks and financial firms in order to lower cost
and save money. These banks and financial firms then issue debit
cards to the students so they can access their financial aid.
The federal government requires that schools disburse financial
aid refunds to students free of charge; however, these debit
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cards come with fees for other services that can take away from
students' aid. As a result students end up bearing some costs
directly, including per-swipe fees, inactivity fees, overdraft
fees, ATM fees and more. The author contends that other issues
include aggressive marketing strategies by partnering companies
on student choice and weaker consumer protections on certain
cards that hold student aid funds.
According to a recent report by the U.S. Public Interest
Research Group (PIRG) Education Fund, debit cards for disbursing
funds may be good for colleges, but argue that cash-strapped
students absorb the costs. The PIRG study finds that some debit
cards come with fees as high as 50 cents per swipe in
transaction fees, $38.00 per overdraft and $10.00 for inactivity
after six months without use. The PIRG study 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.
The author states, "This bill was written based off the recent
U.S. PIRG Campus Debit Card Trap and the National Association of
College and University Business Officers reports describing best
practices for negotiations of the contract between a college or
university and a bank or financial firm." This measure seeks to
protect students by ensuring California colleges and
universities set fair and appropriate regulations in place for
campus debit card programs in order to best serve and protect
their students; making sure they are not unfairly targeted or
faced with aggressive marketing.
Unclear policy rationale . It is unclear why the bill requires
at least one fee-free ATM for every 3,000 students enrolled at
participating campuses and satellite campuses. Staff recommend
the following amendment: Require at least one fee-free
regularly replenished automated teller machine to be placed on a
participating campus or satellite campus, and additional
fee-free regularly replenished automated teller machines placed
on campuses in high enough concentration in order to avoid
students having to go to multiple automated teller machines ,
with which they may use their debit cards, prepaid cards, or
preloaded cards to access their financial aid award and other
refunds.
Arguments in support . The Center for Responsible Lending argues
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that students who opt to receive their financial aid on a debit
card should be entitled to fair limits on the fees they incur to
access and utilize their own money.
Arguments in opposition . The California Bankers Association
argues that this measure is an infringement on a bank's freedom
to price for services rendered.
Previous legislation . AB 262 (Coto), Chapter 679, Statutes of
2007, required the BOT of the CSU and the BOG of the CCC and
urged the Regents of the UC and to (1) annually direct each of
their campuses to disclose specified information regarding
on-campus credit card marketing activities, and (2) prohibit
banks and other commercial entities from offering gifts to
students in exchange for completing credit card applications.
REGISTERED SUPPORT / OPPOSITION :
Support
California Public Interest Research Group
California State Student Association
Center for Responsible Lending
Consumer Action
Consumers Union
Institute for College Access & Success
Student Senate for California Community Colleges
Opposition
California Bankers Association
Analysis Prepared by : Jeanice Warden / HIGHER ED. / (916)
319-3960