BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Carol Liu, Chair
2013-2014 Regular Session
BILL NO: SB 845
AUTHOR: Correa
AMENDED: February 25, 2014
FISCAL COMM: Yes HEARING DATE: March 26, 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 : Electronic disbursement of student financial aid.
SUMMARY
This bill requires the California Community College (CCC)
Board of Governors (BOG) and the California State University
(CSU) Trustees, 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.
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
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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)
ANALYSIS
This bill:
1) Requires the CCC Board of Governors and the CSU Trustees,
and requests the UC Regents and the governing body of an
accredited private postsecondary educational institution
to:
a) 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.
b) Develop the model contract in
consultation with stakeholders that include
statewide student associations, individual campuses
and financial institutions.
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2) Requires and requests that the entities identified in (1)
make every model contract developed publicly available on
its internet web site.
3) Requires that every model contract consider the best
interest of students and, at a minimum, contain
delineated provisions which are identical to the current
federal regulations governing the use of prepaid debit
cards for the disbursement of federal financial aid.
4) Requires and requests that the entities in (1), when
developing each model contract, additionally consider:
a) The number of on-campus, and
proximity of off-campus, locations where students
can make a fee-free withdrawal using a debit,
prepaid, or preloaded card.
b) The type and size of fees a student
would incur from using the card.
c) The impact, if any, that offering a
card which displays the mascot or campus or
educational system name would have on students, the
campus, or the educational system.
d) The impact in any, of the content of
a dispute resolution clause would have on students,
the campus, or the educational system, if a conflict
were to arise between a student and the card-issuing
financial institution.
STAFF COMMENTS
1) Need for the bill . Colleges and universities are
increasingly contracting with financial institutions to
disburse financial aid and process credit balance
refunds. According to the author, one of the greatest
challenges facing students and policymakers is the highly
individualized approach taken by California campuses
toward these contracts with financial institutions.
Individual campuses are on their own when negotiating and
as a result, these contracts are often criticized as
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failing to uphold the best interests of students. Because
of their size and bargaining power, the systems are in a
much better position to negotiate contracts than
individual campuses. In addition, the development of
model contracts will help ensure uniformity in the terms
and conditions that apply to the issuance of
debit/prepaid/preloaded cards to California's college
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
choice and based upon a performance audit conducted from
November 2012 to February 2014. In its review, the GAO
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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 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 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:
Schools that outsourced gave servicers significant
control over the financial aid delivery process and
relied on them to meet federal regulations without
monitoring these activities.
Schools did not prevent servicers from using
marketing and other strategies to influence student
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choice.
In some cases, fees appeared to be unique or
higher than those of other providers.
Financial incentives for schools created the
potential for conflict of interest that could influence
decisions at the expense of student interests.
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:
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.
Require servicers to provide objective and neutral
information on student options.
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.
Define "convenient access" to fee-free ATMs.
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 are required
to ensure compliance with the Family Educational Rights
and Privacy Act (FERPA).
1) 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
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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.
This bill delineates specific provisions that must be
included in the model contracts that reflect current
federal regulations governing the disbursement of federal
financial aid. Based upon the reports outlined in staff
comment # 3, it appears that current federal regulations
may fall short of ensuring the "best interest of
students" as envisioned by this bill. Should this
committee endorse these specific provisions prior to the
adoption of new federal regulations which are expected to
provide more comprehensive and clear direction to schools
and financial institutions than current regulations?
Staff recommends the bill be amended to delete lines
24-38 on page 2 and lines 1-22 on page 3 and to instead
insert, "contain provisions that reflect conditions
required for compliance with federal regulations
governing the disbursement of federal financial aid."
The committee may also wish to reserve its prerogative to
review any changes to the bill reflecting federal
regulations once those have been adopted.
2) Issues of concern . Notwithstanding the potential
adoption of new federal regulations, the recent reports
by the Government Accountability Office 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. For example, federal privacy laws
require that information disclosed without student
consent can only be for a legitimate educational
interest; disclosure to other than a school official 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 finally, the third party is subject to federal
requirements governing the use and redisclosure of the
information.
Of particular concern for this committee are the
educational institutions' role in ensuring servicer's
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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.
This bill currently requires and requests the affected
entities, in developing their contracts to consider
specified issues. This language should be strengthened by
amending the provisions to ensure that educational
institutions consider 1) their role in monitoring
compliance with federal regulations 2) whether the
contract ensures student privacy as required under FERPA,
and 3) the provision of fee information by the servicer
to the institution.
Staff recommends the bill be amended on page 3 lines
23-38 as follows:
(d) When developing each model contract, the board of
governors and the trustees shall, and the regents and
each governing body of an accredited private
postsecondary educational institution are additionally
requested to, consider all of the following:
(1) The number of on-campus locations and proximity of
off-campus locations where a fee-free withdrawal could be
made by a student using a debit card, prepaid card, or
preloaded card.
(2) The type and size of fees a student would incur from
debit, prepaid, or preloaded card use and whether
provisions ensure that the educational institution is
provided information by the card-issuing financial
institution to evaluate the costs of these fees to
students .
(3) The impact, if any, that offering a card displaying
the name or mascot of a campus or educational system
would have on students, that campus, or that educational
system.
4) Whether the provisions ensure that the educational
institution monitors compliance by the financial
institution with federal Title IV requirements governing
the disbursement of financial aid.
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5) Whether the provisions ensure a process for the
tracking and resolution of student complaints about the
card-issuing financial services institution's credit
delivery, customer service, and debit, prepaid or
preloaded cards.
(4) 6) The impact, if any, of the content of a dispute
resolution clause on students, their campus, and their
educational system, if a conflict were to arise between a
student and the card-issuing financial institution.
7) Whether the provisions ensure that the educational
institution does not provide student information beyond
that necessary to perform the contracted financial aid
disbursement function.
8) Whether the provisions ensure that the card-issuing
financial institution does not solicit or collect
information from students, that is not necessary to
perform the contracted financial aid disbursement
function as a condition of accessing their financial
funds through a debit card, prepaid card, or preloaded
card.
3) Similar legislation . AB 1927 (Frazier) requires the
Board of Governors of the California Community Colleges
and the Trustees of the California State University
shall, and requested the Regents of the University of
California and the governing bodies of accredited private
nonprofit and for-profit postsecondary educational
institutions to adopt policies to be used for negotiating
contracts between their postsecondary educational
institutions and banks and other financial institutions
to disburse a student's financial aid award and other
refunds onto a debit card, prepaid card, or preloaded
card that best serves the needs of the students. AB 1927
is awaiting hearing in the Assembly Higher Education
Committee.
4) Prior legislation . AB 1162 (Frazier, 2013) 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 financial
institutions to disburse a student's financial aid award
onto debit, prepaid, or preloaded cards, and encourages
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consideration of specific elements in these policies. 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. 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.
SUPPORT
California State Student Association
University of California Student Association
OPPOSITION
None received.