BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Carol Liu, Chair
2013-2014 Regular Session
BILL NO: AB 1927
AUTHOR: Frazier
AMENDED: June 4, 2014
FISCAL COMM: Yes HEARING DATE: June 11, 2014
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 banks and other
financial institutions to disburse a student's financial aid
award, and other refunds onto debit, prepaid, or preloaded
cards, and requires the policies to meet specified
requirements. 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 to a
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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)
Current law declares the Legislature's intent to ensure the
protection of the personal information of California residents
and to encourage businesses that own or license personal
information about Californians to provide reasonable security
for that information. Under these provisions, a business that
owns or licenses personal information about a California
resident is required to implement and maintain reasonable
security procedures and practices to protect the personal
information from unauthorized access, destruction, use,
modification, or disclosure. These provisions also define
"personal information as social security number, driver's
license number or California identification card number,
account number, credit or debit card number, in combination
with any required security code, access code, or password that
would permit access to an individual's financial account, and
medical information. (Civil Code 1798.81.5)
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ANALYSIS
This bill :
1) Requires the CCC Board of Governors (BOG) and the CSU
Trustees to adopt policies, that best serve the needs of
students, when negotiating contracts with banks and other
financial institutions for disbursing financial aid
awards and refunds onto debit cards, prepaid cards or
preloaded cards.
2) Requires that the adopted policies, consistent with
specified federal law, ensure that contracts to disburse
a student's financial aid awards and other refunds onto
debit cards, prepaid cards or preloaded cards:
a) Prohibit revenue sharing between
segments and financial institutions.
b) Prohibit the sale or sharing of
personal information, as defined, provided by the
student or the institution, unless it is necessary
for the purpose of services related to the opening
or maintenance of the card account.
c) Prohibit the financial institution
from imposing a point of sale transaction fee on a
student for use of the card.
d) Provide a clear and conspicuous
disclosure to students of all associated fees.
e) If cobranded, provide a clear and
conspicuous disclosure to students that the card is
not endorsed by the educational institution.
f) Ensure the student does not incur any
costs related to opening an account or initially
receiving the card.
g) Ensure the student has convenient
access to a bank branch or office or an automated
teller machine so that withdrawal costs are not
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incurred by the student.
h) Require that the office of ATM is
located on the campus, in an institutionally owned
or operated facility, or immediately adjacent to an
accessible from the campus.
i) Ensure the card can be widely used.
j) Prohibit marketing, portraying, or
subsequently converting the account or card, into a
credit card or credit instrument.
aa) Require the educational institution
to disclose the benefits and student
responsibilities for all financial aid disbursement
options offered by the educational institution.
3) Requires that the adopted policies only be applied to
negotiating contracts for the purpose of disbursing a
student's financial aid award and other refunds onto a
debit, prepaid, or preloaded card.
4) Defines a "bank or other financial institution" to
include, but not be limited to, a depository institution
or an entity that partners with one or more depository
institutions.
5) Requests the UC Regents and the governing bodies of
private nonprofit and for-profit postsecondary
educational institutions to comply with these provisions.
STAFF COMMENTS
1) 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. But
while these partnerships can lower administrative costs
for colleges and have the potential to be beneficial to
students, the author states that 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
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limited financial aid. The author contends that existing
federal law requires minimal protections for students and
does not address issues that have been particularly
problematic. Federal officials and consumer advocates
question whether the payments or benefits that a college
receives may encourage schools to choose a contract that
provides the school the most revenue, as opposed to a
contract that best serves the needs of the students.
2) Recent Related Reports . Several recent reports have been
issued as the result of concerns being raised by federal
agencies, consumer advocacy groups and members of
congress. These include the following:
PIRG report: 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. 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.
GAO Report : In February 2014, the US Government
Accountability Office issued its report, College Debit
Cards: Actions needed to address ATM Access, Student
Choice, and Transparency to the US Senate Committee on
Health, Education, Labor, and Pensions in response to
questions regarding fees and issues such as student
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choice and based upon a performance audit conducted from
November 2012 to February 2014. In its review, the GAO
identified 852 colleges and universities with card
agreements as of July 2013, representing 11 percent of
schools, and 39 percent of all students at schools,
participating in federal student aid programs.
Additionally, the GAO reports that the card agreements
are most common at public colleges and universities (29
percent, nationally).
With regard to fees, the GAO found that the US Department
of Education (USDOE) provides a limited definition of
what constitutes "convenient access," of those that they
spoke with, college card providers were generally
unwilling or unable to provide details of their fee
revenues, and though the USDOE encourages schools to
disclose information on the costs incurred by their
students for using their college cards, none tracked such
costs. In addition, the GAO reports that guidance does
not currently address the marketing of cards or the
extent to which schools must inform students of financial
aid payment options. Finally, the report found that
comprehensive information on the prevalence and terms of
these agreements and students' experience using college
cards is unavailable.
The GAO recommended that Congress consider requiring
financial firms to file their agreements for public
review and provide other relevant information, and that
the USDOE develop regulations that specify what
constitutes "convenient access" and develop requirements
for schools and card providers to provide neutral
information to students about their options for receiving
federal financial aid funds.
Office of Inspector General, USDOE : In 2014, the
Inspector General issued a management information report
Third Party Servicer Use of Debit Cards to Deliver Title
IV Funds. The limited review examined four schools which
included a California community college and a CSU campus.
The report found that:
a) Schools that outsourced gave servicers
significant control over the financial aid delivery
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process and relied on them to meet federal
regulations without monitoring these activities.
b) Schools did not prevent servicers from using
marketing and other strategies to influence student
choice.
c) In some cases, fees appeared to be unique or
higher than those of other providers.
d) Financial incentives for schools created the
potential for conflict of interest that could
influence decisions at the expense of student
interests.
e) Schools provided, or servicers collected,
student information beyond that necessary to deliver
financial aid and schools did not monitor services
to ensure compliance with federal requirements
regarding the handling of confidential student
information.
Among its recommendations, the Inspector General
suggested that the USDOE consider federal regulations to:
f) Require schools to monitor servicer's
compliance with Title IV requirements and have a
process to ensure resolution of any student
complaints regarding the servicer.
g) Require servicers to provide objective and
neutral information on student options.
h) Ensure that no transaction or administrative
fees to access financial aid funds be charged and to
require schools to compute and annually disclose the
average cost incurred by students to students.
i) Define "convenient access" to fee-free ATMs.
j) Require schools to ensure servicers do not
collect information from students beyond that
necessary to perform the Title IV function, and that
federal agencies consider what additional actions
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are required to ensure compliance with the Family
Educational Rights and Privacy Act (FERPA).
3) Pending federal regulations . In November 2013, the US
Department of Education (USDOE) announced its intention
to establish a negotiated rulemaking committee to prepare
proposed regulations to address program integrity and
improvement issues for the Federal Student Aid Title IV
programs. Actual negotiations began in February 2014 and
are scheduled to conclude on April 25, 2014. At that
time, the USDOE will publish proposed rules in the
Federal Register for comment by the general public, and
then publish final regulations sometime thereafter. While
negotiated rulemaking has closed, as of the completion of
this analysis, no new regulations have been issued.
4) Issues of concern . Based upon the reports outlined in
staff comment # 2, it appears that current federal
regulations may fall short of ensuring the "best interest
of students." The GAO and Inspector General raise a
number of significant concerns about the responsibility
of educational institutions that contract with
third-party servicers to ensure compliance with federal
regulations.
Of particular concern for this committee are the
educational institutions' role in ensuring servicer's
compliance with Title IV requirements, the protection of
student privacy as required under Family Educational
Rights and Privacy Act (FERPA), and the apparent lack of
information about the costs incurred by students to
access their financial aid funds.
The committee has considered similar legislation to
respond to these concerns. SB 845 (Correa) would defer to
federal regulations in the development of model contracts
to be developed and available for use by campuses,
whereas, in the absence of new federal regulations, this
bill would require the governing bodies of postsecondary
educational institutions to adopt policies to ensure that
specific elements are included in these types of
contracts beyond those which may be required by federal
law. These include provisions around privacy, fees and
disclosures.
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5) Consistent with federal law ? This bill outlines several
requirements regarding contracts between educational and
financial institutions. The bill also suggests that these
requirements are all consistent with federal law. While
some elements of the bill are currently under review
through the negotiated rulemaking process, and others are
elements of newly introduced federal legislation (HR
4714, introduced at the federal level on May 14, 2014),
several elements go beyond the federal regulations
currently applicable to the disbursement of financial
aid. These include prohibitions on revenue sharing,
prohibitions on the sale or sharing of personal
information, prohibitions on point of sale transaction
fees, and specified disclosures.
Staff recommends the bill be amended to distinguish those
requirements in the bill which are required under current
federal regulations, and those which are newly imposed by
the bill. These include those requirements outlined in
the "Analysis" portion of this document under 2 (a), (b),
(c), (d), (e), and (k).
6) Are these the right privacy provisions ? This bill
prohibits the sale or sharing of "personal information"
as defined in provisions of the Civil Code. These Civil
Code provisions are intended to encourage businesses that
own or license personal information about Californians to
provide reasonable security for that information.
However, federal privacy laws applicable to student
information (FERPA) require that information disclosed
without student consent can only be for a legitimate
educational interest; disclosure to other than a school
official may only be for purposes of performing a
function that the school would normally perform; use and
maintenance of the records must be under the direct
control of the school; and the third party is subject to
federal requirements governing the use and redisclosure
of the information.
In light of the federal reports raising concerns that
neither educational nor financial institutions were in
full compliance with FERPA, staff recommends the bill be
amended to additionally require that the policies ensure
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that information disclosed by the institution or
solicited by the financial institution, and the treatment
of the information, be consistent with federal student
information privacy requirements under FERPA.
7) Related Legislative Counsel Opinion . Concerns have been
raised that this bill establishes contractual conditions
that conflict with federal law. In response to similar
concerns about prior legislation, Legislative Counsel
issued opinion #1312504 which contained the following
relevant excerpts relative to federal laws under the
National Bank Act (NBA), Electronic Fund Transfer Act
(EFTA), and Federal Arbitration Act (FAA):
a) If a national bank agreed to a contract with a
postsecondary educational institution that included
contract provisions relating to specified issues,
that contract would not be preempted because
contractual obligations voluntarily agreed to by a
national bank that are more restrictive than federal
law are not preempted.
b) When supplying financial aid to a student, the
state has an interest to ensure that the financial
aid is delivered to the student in a form that is
efficient and cost effective, and in a readily
accessible manner. If prior legislation had
mandated that educational institutions adopt
contract negotiation policies related to fees, the
legislation would not be preempted as the state
would be acting only in a proprietary capacity by
requiring certain provisions in a narrow scope of
contracts.
c) Prior legislation would not have been preempted
by the EFTA because it would not be inconsistent
with EFTA and would require negotiation policies to
consider consumer protections equal to or greater
than those provided under the federal law.
8) Similar legislation . SB 845 (Correa) awaiting action in
the Assembly Higher Education Committee, requires the
California Community College (CCC) Board of Governors
(BOG) and the California State University (CSU) Trustees,
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and requests the Regents of the University of California
(UC) and the governing body of an accredited private
postsecondary educational institution, to develop one or
more model contracts for use by their respective systems
for the disbursement of student financial aid onto debit
cards, prepaid cards or other preloaded cards issued by a
financial institution, as specified.
9) Prior legislation .
a) AB 1162 (Frazier, 2013), which was
substantively similar to this bill, required the
CCC Board of Governors and the 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
encouraged consideration of specific elements in
these policies. The bill also requested the
University of California (UC) Regents and the
governing bodies of private nonprofit and for-profit
postsecondary educational institutions to comply
with these provisions. AB 1162 was heard and passed
by this committee by a vote of 6-2 in 2013, but
subsequently failed passage in the Senate Banking
and Finance Committee by a vote of 2-3.
b) SB 595 (Calderon, Chapter 217, Statutes of
2013) prohibits 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 requests the UC
to comply with these provisions.
SUPPORT
California Communities United Institute
California State Student Association
CALPIRG
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Consumers Union
Faculty Association of California Community Colleges
OPPOSITION
California Bankers Association
Higher One