BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Carol Liu, Chair
2013-2014 Regular Session
BILL NO: AB 1162
AUTHOR: Frazier
AMENDED: May 1, 2013
FISCAL COMM: Yes HEARING DATE: June 12, 2013
URGENCY: No CONSULTANT:Kathleen Chavira
NOTE : This bill has been referred to the Committees on
Education and Banking
and Financial Institutions. A "do pass" motion should
include referral to the
Committee on Banking and Financial Institutions.
SUBJECT : Student financial aid debit cards.
SUMMARY
This bill requires the California Community College (CCC)
Board of Governors (BOG) and the California State University
(CSU) Trustees to adopt policies, that best serve the needs
of the students, when negotiating contracts with financial
institutions to disburse a student's financial aid award onto
debit, prepaid, or preloaded cards, and encourages
consideration of specific elements in these policies. The
bill also requests the University of California (UC) Regents
and the governing bodies of private nonprofit and for-profit
postsecondary educational institutions to comply with these
provisions.
BACKGROUND
Federal regulations establish rules for the disbursement of
federal financial aid to students. These 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. In
situations where a school opens 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
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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 cards. (34 California Code of
Federal Regulations (CFR) 668 164(c) (3))
Current law 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 fund 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).
Current law 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.
(Education Code � 69432.9 and � 69433).
ANALYSIS
This bill :
1) Requires the adoption of policies, that best serve the
needs of students, when negotiating contracts with
financial institutions for disbursing financial aid
awards and refunds onto debit cards, prepaid cards or
preloaded cards.
2) Encourages postsecondary educational institutions to
consider whether to include several specified elements
in adopting their policies for these negotiating
contracts, including whether to:
a) Provide students a choice of where
to bank, as specified.
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b) Require at least one fee-free
regularly replenished automated teller machine, and
additional machines in a high enough concentration
to ensure access to financial aid funds.
c) Prohibit the imposition of fees, as
specified, on students for using debit cards,
prepaid cards and preloaded cards.
d) Require the prominent display of
related fees on the financial institution's website
or information mailed to students.
e) Prohibit cobranding of the cards.
f) Require that the cards include the
same level of consumer protections as that provided
to automated teller machine customers as required
under specified federal law.
g) Prohibit the card contracts from
including mandatory arbitration clauses.
STAFF COMMENTS
1) What's the problem ? According to the author, as college
and university budgets have shrunk, many have begun to
use third-party servicers to disburse financial aid and
issue credit balance refunds to students on debit cards.
The author contends that while many schools are
obtaining revenue and reducing costs by outsourcing
these services, the relationships between schools and
financial institutions have raised questions because
students end up bearing some costs directly, including
per-swipe fees, inactivity fees, PIN based fees, ATM
fees and more. The author is also concerned about
aggressive marketing strategies by partner companies on
student choice and weaker consumer protections on
certain cards that hold student aid funds.
2) Related report . According to a recent report by the U.S.
Public Interest Research Group, Campus Debit Card
Trap, banks and financial firms are forming partnerships
with colleges and universities to produce campus ID
cards and to offer student aid disbursements on debit or
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prepaid cards. The federal government requires that
schools disburse financial aid refunds to students free
of charge; however, these debit cards can 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 report contends that debit cards for disbursing
funds may be good for colleges, but argue that
cash-strapped students absorb the costs. The U.S.
Public Interest Research Group 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
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.
3) Does this bill fix the problem ? The first part of the
bill directs the state-level governing bodies of the
public postsecondary educational institutions, and
others, as specified, to adopt policies that ensure that
students' interests are served when negotiating
contracts with financial institutions for the
disbursement of financial aid funds via specified cards.
These provisions could result in the adoption of uniform
policies that ensure a focus on students' interests
across all campuses. However, the second part of the
bill requires that these entities consider whether to
require or prohibit specified elements in their
policies. It is unclear what effect encouraging the
governing bodies to "consider" the specified elements
really achieves. Would these provisions result in any
greater protection for students than what currently
exists?
4) Federal requirements related to debit cards ? As noted in
the background of this analysis, federal regulations
establish a number of conditions and requirements which
must be met if a school chooses to distribute federal
financial aid through stored-value and prepaid debit
cards. Staff recommends the bill be amended to
additionally require that a school's policies insure, at
minimum, that contracts negotiated with financial
institutions ensure that the institution may only use a
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debit card, prepaid card, or preloaded card as a means
to make state or institutional financial aid
disbursements or payments to students if the contracts
are in compliance with federal regulations governing the
disbursement of federal financial aid. (34 CFR
668.164(c) (3).
5) Double referral . Some concerns have been raised that
this bill directs educational institutions to consider
requirements and prohibitions when adopting policies
that would conflict with, or violate, federal banking
laws and regulations. It is unclear how considering
"whether" to do something results in conflict or
violation of laws since presumably, when considering,
these entities would determine whether these policies
are permissible under the law.
This bill has also been referred to the Senate Banking
and Financial Institutions Committee which has
jurisdiction over legislation relating to financial
institutions, commerce, international trade, retail
credit interest rates and corporations, and can more
appropriately determine whether the bill's provisions
create the alleged conflicts or violations.
SUPPORT
California Federation of Teachers
California State Student Association
California State University
California Student Aid Commission
California Teachers Association
CALPIRG
Community College League of California
Consumer Action
Contra Costa Community College District
Faculty Association of California Community Colleges
University of California Student Association
OPPOSITION
California Bankers Association
Civil Justice Association of California
Higher One
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