BILL ANALYSIS �
AB 1927
Page 1
GOVERNOR'S VETO
AB 1927 (Frazier)
As Amended August 19, 2014
2/3 vote
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|ASSEMBLY: |53-22|(May 19, 2014) |SENATE: |23-12|(August 27, |
| | | | | |2014) |
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|ASSEMBLY: |55-24|(August 28, | | | |
| | |2014) | | | |
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Original Committee Reference: HIGHER ED.
SUMMARY : Requires the Regents of the University of California
(UC), the Board of Trustees (BOT) of the California State
University (CSU), the Board of Governors (BOG) of the California
Community Colleges (CCC), and the governing bodies of accredited
private nonprofit and for-profit postsecondary educational
institutions, as a condition for participation in the Cal Grant
Program, to adopt policies that best serve the needs of students
when 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; and, requires the polices to meet specified requirements.
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
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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 automated teller machines (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 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
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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 Senate Appropriations Committee
(as approved on August 14, 2014), the following costs are
associated with this measure: 1) 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; and, 2) contract prohibitions: Unknown
costs/savings to students, campuses, and financial institutions
that choose to utilize debit card disbursements. 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 programs; or, d) the same level of
fees being shifted to students in a different way.
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
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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
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), Chapter 120, Statutes of
2014, would require the CCC BOG and the CSU Trustees, and would
request the UC Regents and each governing body of an accredited
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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
requests the UC to comply with these provisions.
AB 1162 (Frazier) of 2013, 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 Assembly
Higher Education 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, would require 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.
GOVERNOR'S VETO MESSAGE :
"Earlier this year, I signed SB 845 (Correa), requiring
California's higher education institutions to consult with
stakeholders and adopt a model contract that can be used to
disburse financial aid or refunds to students on payment cards.
Any additional changes to this area of the law are premature."
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Analysis Prepared by : Jeanice Warden / HIGHER ED. / (916)
319-3960 FN:
0005647