BILL ANALYSIS �
AB 1927
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Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1927 (Frazier) - As Amended: May 5, 2014
Policy Committee: Higher
EducationVote:9-4
Banking and Finance 7-3
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill requires the governing boards of the California
Community College (CCC) and the California State University
(CSU), and requests the governing boards of the University of
California (UC) and of nonpublic educational institutions, to
adopt policies to be used for negotiating contracts between
their institutions and financial institutions for disbursing
students' financial aid awards and other refunds onto a debit
card, prepaid card or preloaded card in a manner that best
serves students' needs. Specifically, this bill requires the
policies to be consistent with federal law and regulations and
to do all of the following:
1) Prohibit revenue sharing between the postsecondary
institution and the financial institution.
2) Prohibit the sale or sharing of personal information.
3) Prohibit the imposition of a point-of-sale transaction
fee on use of the card.
4) Provide a clear disclosure of all fees associated with
the card.
5) For a cobranded card, provide a clear disclosure that
the card is not endorsed by the educational institution.
6) Ensure the student does not incur any cost in opening an
account or initially receiving the card.
7) Ensure the student has convenient access to a branch
office or ATM of the bank.
8) Ensure the card can be widely used.
9) Not market the debit card as a credit card.
10) Disclose to students the benefits and responsibilities
of all options of financial aid disbursement available.
AB 1927
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FISCAL EFFECT
Costs for the governing boards of the CCC and CSU to adopt the
required policies would be minor and absorbable. UC would have
no costs, as its campuses do not have such contracts for
financial aid disbursement.
The parameters required in the governing boards' policies, to
the extent they are in addition to federal requirements, could
increase the cost of future contracts that CSU campuses and
community college districts have with financial institutions for
this service-assuming they would choose to continue providing or
to begin offering this the service under these parameters. This
could increase campus administrative costs. These costs are
unknown, but would not be state reimbursable for the community
colleges.
COMMENTS
1) Purpose . According to the author's office, "According to
a 2012 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 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."
AB 1927 arises out of concern that college students in
California who receive some form of financial aid via debit
card may not be aware of the actual costs of using this method
of receiving aid, and that the relationship between
educational institutions and financial institutions has
created pressure to over promise and under deliver the
benefits of a debit card use for financial aid delivery. The
GAO released a report in February 2014, College Debit Cards,
AB 1927
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Actions Needed to Address ATM Access, Student Choice, and
Transparency that raised several concerns that this bill seeks
to address.
Also in response to this issue, the United States Department
of Education began a negotiated rule making process to expand
the rules governing disbursement of financial aid via debit
cards. These proposed rules are subject to ongoing
negotiations as Education has recently announced the addition
of a fourth round of meetings to occur in mid-May 2014.
2) Opposition . Higher One, a non-bank provider of these
services, and the California Bankers Association (CBA)
contend the bill is premature in light of the current
federal rulemaking. The CBA asserts that the bill will
discourage student choice by applying to banks and
financial institutions that are not parties to a contract
for financial aid disbursement, and that ban on
point-of-sale fees is not enforceable for national banks.
3) Prior Legislation . Last year, a similar bill, AB 1162
(Frazier) failed in Senate Banking and Financial
Institutions. Whereas AB 1162 only encouraged the financial
aid disbursement policies to include specific elements, AB
1927 requires these elements.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081