BILL ANALYSIS �
AB 1927
Page 1
Date of Hearing: April 1, 2014
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
AB 1927 (Frazier) - As Introduced: February 19, 2014
[Note: This bill is doubled referred to the Assembly Banking and
Finance Committee and will be heard as it relates to issues
under its jurisdiction.]
SUBJECT : Student financial aid: debit cards.
SUMMARY : Requires the Board of Trustees (BOT) of the
California State University (CSU) and the Board of Governors
(BOG) 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 and for-profit
postsecondary educational 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 CSU BOT and the CCC BOG and requests the Regents
of the UC and the governing bodies of accredited private
non-profit and for-profit postsecondary educational
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 as best serves the needs of
the students.
2)Specifies that the policies adopted shall be consistent with
federal law, ensuring that contracts between postsecondary
educational institutions and banks or other financial
institutions to disburse a student's financial aid award and
other refunds onto a debit card, prepaid card or preloaded
card do at least all of the following:
a) Prohibit the revenue sharing between a postsecondary
educational institution and banks or other financial
institutions;
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b) Prohibit the sale of private information that the
student or the postsecondary educational institution
provides the bank or other financial institution;
c) Prohibit the debit card, prepaid card, or preloaded card
use from imposing fees;
d) Prohibit the debit card, prepaid card, or preloaded card
from being cobranded, which means including the logo of the
postsecondary educational institution;
e) Ensure that the student does not incur any cost in
opening the account or initially receiving the debit card,
prepaid card, or preloaded card;
f) Ensure that the student has convenient access to a
branch office of the bank or an automated teller machine
(ATM) of the bank in which the account was opened or of
another bank, so that the student does not incur any cost
in making withdrawals from that office or those ATMs and,
the branch office or ATMs must be located on the
postsecondary educational institution's campus, in an
institutionally owned or operated facility, or immediately
adjacent to and accessible from the campus;
g) Ensure that the debit card, prepaid card, or preloaded
card can be widely used; and,
h) Not market or portray the account or debit card, prepaid
card, or preloaded card as a credit card or credit
instrument, or subsequently convert the account or debit
card, prepaid card, or preloaded card to a credit card or
credit instrument.
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
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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 California 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).
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 : Unknown
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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 (HEA) of 1965,
as amended, authorizes various programs that provide financial
aid to eligible postsecondary students enrolled in eligible
programs at participating schools. Federal Student Aid (FSA), 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, as college budgets
have shrunk, colleges have partnered with financial firms to
disburse student financial aid - oftentimes in the form of debit
and prepaid cards. While these partnerships can lower
administrative costs for colleges and have the potential to be
beneficial to students, their value has been called into
question in instances where students end up bearing the cost
directly through poor customer service and unnecessarily high
fees that eat into their already limited financial aid. The
author states, "Existing federal law requires minimal
protections for students and does not address issues that have
been particularly problematic. Colleges and universities must
set in place regulations for campus debit card programs to
ensure that students are protected in these arrangements."
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
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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
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 comes as the USDE is 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.
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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 (NPRM)
in order to create a negotiated rulemaking committee and tasked
the 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. This
recently formed committee is still meeting; to date, findings,
declarations, and recommendations have not been disclosed.
According to the USDE Office of Postsecondary Education, the
first session of the committee was a listening session where
negotiators provided their input in response to the Issue Papers
provided by the USDE (under Session 1 Materials on the website).
During the second session, which took place at the end of
March, the negotiators discussed draft regulatory language
provided by the USDE. Once provided to the committee, that
draft language and other materials considered by the committee,
will be posted to the website. Most likely, it will not be
until the final session, which is scheduled to take place at the
end of April, when the committee will vote on the draft language
that has been developed to determine if there is consensus on it
(meaning that there is no dissent by any member of the
negotiating committee).
To note, if consensus is achieved, the USDE uses that regulatory
language in its NPRM. If not, the USDE may use regulatory
language developed during the negotiations as the basis for its
NPRM, or develop new regulatory language for all or a portion of
its NPRM. To track the progress of the committee, on the
internet, go to:
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http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/program
integrity.html .
Committee consideration . With the USDE in the process of
reviewing their regulations concerning the disbursement of Title
IV funds to students, should our state act on this issue prior
to obtaining updated guidelines and regulations from the USDE?
Other efforts . The 77th Oregon Legislative Assembly is
currently considering House Bill 4102; which prohibits public or
private post-secondary educational institutions from entering
into contracts with financial firms to provide disbursement and
management services of student financial aid funds unless the
following requirements are met: 1) clear and concise disclosure
of fee schedules before the student agrees to use an account
offered by third-party financial firm; 2) explanation of all
methods available to students to access financial aid; 3)
ability for students to choose to receive financial aid through
a paper check or electronic funds transfer; 4) require paper
checks be sent or electronic fund transfers be initiated, at no
cost to the student, within three business days of the students'
request; 5) prohibit charging students fees per transaction for
making a debit or similar transaction using a debit or similar
card provided by the third-party financial firm; and, 6)
prohibitive provision allowing revenue sharing.
Related legislation . SB 845 (Correa), which is pending a
hearing date in the Senate Appropriations Committee, would
require the CCC BOG and the CSU Trustees, and would request the
UC Regents and each governing body of an accredited private
postsecondary educational institution, to develop, in
consultation with stakeholders, one or more model contracts for
use at their respective systems for the disbursement of a
financial aid award, scholarship, campus-based aid award, or
school refund on a debit, prepaid, or preloaded card.
SB 595 (Ron Calderon), Chapter 217, Statutes of 2013, prohibited
any campus of the CCC or the CSU 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, and requires
that they offer a student the option of receiving his/her
financial aid disbursement via direct deposit within one day of
the disbursement of monies, as specified. The bill also
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requests the UC to comply with these provisions.
AB 1162 (Frazier), would have required the CCC BOG 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, but failed passage in Senate Banking
and Finance Committee.
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
None on file.
Opposition
California Bankers Association
Analysis Prepared by : Jeanice Warden / HIGHER ED. / (916)
319-3960