BILL ANALYSIS �
AB 1927
Page 1
ASSEMBLY THIRD READING
AB 1927 (Frazier)
As Amended May 5, 2014
Majority vote
HIGHER EDUCATION 9-4 BANKING & FINANCE 7-3
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|Ayes:|Williams, Bloom, Fong, |Ayes:|Dickinson, Bonta, Chau, |
| |Fox, | |Gatto, Perea, Weber, |
| |Jones-Sawyer, Levine, | |Williams |
| |Medina, | | |
| |Quirk-Silva, Weber | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Ch�vez, Linder, Olsen, |Nays:|Allen, Achadjian, Linder |
| |Wilk | | |
| | | | |
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APPROPRIATIONS 12-5
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|Ayes:|Gatto, Bocanegra, | | |
| |Bradford, | | |
| |Ian Calderon, Campos, | | |
| |Eggman, Gomez, Holden, | | |
| |Pan, Quirk, | | |
| |Ridley-Thomas, Weber | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Bigelow, Donnelly, Jones, | | |
| |Linder, Wagner | | |
| | | | |
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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 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,
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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) Provide, for a cobranded card, 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 automatic teller machine (ATM) of the bank.
8) Ensure the card can be widely used.
9) Prohibit marketing a debit card as a credit card.
10) Disclose to students the benefits and responsibilities
of all options of financial aid disbursement available.
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
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
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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 Code of Federal Regulations (CFR) Section
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 Section 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; and, limits a debit cardholder's
liability for unauthorized use of a debit card (Civil Code
Sections 1748.30 and 1748.31).
4)Provides for a variety of student financial aid programs
including the Cal Grant programs and the CCC BOGs 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 postsecondary 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 Sections 69432.9 and
69433).
FISCAL EFFECT : According to the Assembly Appropriations
Committee, costs for the governing boards of the CSU and the CCC
to adopt the required policies would be minor and absorbable.
The UC would have no costs, as its campuses do not have such
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contracts for financial aid disbursement.
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. The United
States (U.S.) Department of Education (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 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.
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
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study argues that cash-strapped students absorb the costs. The
PIRG study finds that some debit cards come with transaction
fees as high as $0.50 per swipe, $38 per overdraft and $10 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 PIRG 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.
Related legislation. SB 845 (Correa) of the current legislative
session, which is pending action in the Senate Appropriations
Committee, would require the CCC BOG and the CSU BOT, 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.
Analysis Prepared by : Jeanice Warden / HIGHER ED. / (916)
319-3960
FN: 0003447