BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1927 (Frazier) - Student Financial Aid Debit Cards
Amended: June 19, 2014 Policy Vote: Education 6-2
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Jacqueline Wong-Hernandez
This bill may meet the criteria for referral to the Suspense
File.
Bill Summary: AB 1927 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.
Fiscal Impact:
Contract modification: Likely minor, but potentially
significant workload to campuses that have contracts with
banks and other financial institutions to disburse financial
aid on debit cards, to modify those contracts to ensure
compliance with the new requirements. Likely minor workload
for the CCC Chancellor's Office and CSU Office of the
President to ensure campus compliance, to the extent
concerns are raised.
Contract prohibitions: Unknown costs/savings to students,
campuses, and financial institutions that choose to utilize
debit card disbursements (which are prohibited from being
mandatory for an institution or student). This bill's
limitations on certain revenues from financial aid debit
cards will impact the terms of a contract between a
financial institution and the campus and may result in: a)
campuses paying higher fees as part of the contracts (in
order to offset the loss of certain student fees; b)
campuses choosing not to enter into these contracts; c)
financial institutions having reduced profits from these
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programs; or, d) the same level of fees being shifted to
students in a different way. See staff comments.
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 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 668 164(c) (3))
Existing 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 � 1748.30)
Proposed Law: This bill requires the BOG of the CCC 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.
1) 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) Ensure the student does not incur any
costs related to opening an account or initially
receiving the card.
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b) Ensure the student has convenient
access to a bank branch or office or an ATM so that
withdrawal costs are not incurred by the student, and
specifically that the office or ATM is located on the
campus, in an institutionally owned or operated
facility, or immediately adjacent to and accessible
from the campus.
c) Ensure the card can be widely used,
including ensuring that use of the card is not limited
to particular vendors, as specified.
d) Prohibit marketing, portraying, or
subsequently converting the account or card, into a
credit card or credit instrument.
e) Prohibit revenue sharing, as defined,
between segments and financial institutions.
f) 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.
g) Prohibit the financial institution from
imposing a point of sale transaction fee on a student
for use of the card.
h) Require the card-issuing bank to
provide a clear and conspicuous disclosure to students
of all associated fees, as specified.
i) If cobranded, provide a clear and
conspicuous disclosure to students that the card is
not endorsed by the educational institution.
2) 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.
3) Requests the UC Regents and the governing bodies of private
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nonprofit and for-profit postsecondary educational
institutions to comply with these provisions.
Related Legislation: SB 845 (Correa) Ch. 12/2014 requires the
governing board of each of the segments and each governing body
of an accredited private postsecondary educational institution
to develop one or more model contracts for use at their
respective systems to disburse financial aid onto debit,
prepaid, or preloaded cards issued by a financial institution,
as specified, and to post model and actual contracts on their
respective websites.
Staff Comments: The fiscal impact of this bill is unclear
because it depends on the response of the segments and private
businesses to new requirements. The potential costs will vary by
affected entity, and will likely vary over time. This bill
attempts to limit the ways in which a private company entering
into a contract with a postsecondary educational institution to
disburse student financial aid awards onto debit cards (or other
preloaded cards) can collect fees from students for accessing
their financial aid through those cards; its provisions go
beyond federal law (which has some of the same requirements).
Among the requirements, some that are more directly limiting of
revenue are:
1) The prohibition of revenue sharing, as defined, between
segments and financial institutions. It is unclear how common
this practice is now, but to the extent that campuses are
sharing in fee revenue, there would be direct foregone
revenue to the campus from this prohibition.
2) The prohibition of the sale or sharing of personal
information, as defined, provided by the student or the
institution, as specified. To the extent that the ability for
the financial institution to sell student information for
marketing purposes is a source of revenue, a reduction in
that revenue to the financial institution could affect the
terms of the contract.
3) The prohibition of the financial institution imposing a
point of sale transaction fee on a student for use of the
card. This type of fee, in which the financial institution
gets some small amount each time the student uses the card to
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make a direct purchase, is common. If this specific fee were
prohibited, it is unclear whether the financial institution
would simply come up with another type of student fee to
replace the revenue, or whether the revenue loss would result
in campuses paying more in fees to participate (in order to
make up for the revenue loss).
Staff notes that, because they are required under existing law
to give students another option besides debit cards for
financial aid disbursement, campuses all have alternative
systems in place for disbursing aid. Generally, those
"traditional" systems are the more popular choice by students
and campuses. This bill places new requirements on contracts
that may make debit card disbursement arrangements less
profitable and less attractive to campuses.