BILL ANALYSIS �
SB 845
Page 1
Date of Hearing: June 10, 2014
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
SB 845 (Correa) - As Amended: May 7, 2014
SENATE VOTE : 31-0
SUBJECT : Postsecondary education: electronic disbursement of
student financial aid.
SUMMARY : Requires the Board of Governors (BOG) of the
California Community Colleges (CCC) and the Trustees of the
California State University (CSU), 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 and all binding contracts,
as specified, for use by their respective systems to disburse a
financial aid award, scholarship aid, campus-based aid award, or
school refunds onto debit cards, prepaid cards or other
preloaded cards issued by a financial institution, as specified,
and to post model and actual contracts on their respective
Internet Web sites. Specifically, this bill :
1)Requires the CCC BOG and the CSU Trustees and requests the UC
Regents 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 a financial aid award, scholarship aid, campus-based
aid award, or school refunds onto debit, prepaid, or preloaded
cards issued by a financial institution; and, specifies that
each model contract shall be developed in consultation with
stakeholders including statewide student associations,
individual campuses, and finance institutions that issue debit
cards, prepaid cards, and preloaded cards and shall not be
finalized before public comment is sought and considered.
2)Requires the BOG and the Trustees and requests the Regents and
each governing body of an accredited private postsecondary
educational institution to make every model contract, and
every binding contract negotiated by an educational
institution under the jurisdiction of one of these governing
bodies with a financial institution for the disbursement of a
financial aid award, scholarship, campus-based aid award, or
school refund onto a debit card, prepaid card, or preloaded
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cared, publicly available on its Internet Web site.
3)Specifies that every model contract developed shall consider
the best interests of the students and shall, at a minimum,
contain provisions that reflect conditions required for
compliance with federal regulations governing the disbursement
of federal financial aid.
4)Requires the BOG and the Trustees and requests the Regents and
each governing body of an accredited private postsecondary
educational institution to consider all of the following when
developing each model contract:
a) The number of on-campus locations and proximity of
off-campus locations where a fee-free withdrawal can be
made by a student using a debit/prepaid/preloaded card;
b) The type and size of fees a student would incur from
debit/prepaid/preload card usage and whether provisions of
the model contract ensure that the educational institution
is provided information by the card-issuing financial
institution to evaluate the costs of these fees to
students;
c) The impact, if any, that offering a card displaying the
name or mascot of a campus or educational system would have
on students, their campus, or their educational system;
d) Whether provisions of the model contract ensure that the
educational institution monitors compliance by the
financial institution with federal Title IV requirements
governing the disbursement of financial aid;
e) Whether provisions of the model contract ensure a
process to track and resolve student complaints about the
card-issuing financial institution's credit delivery,
customer service, and debit/prepaid/preloaded cards;
f) 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;
g) Whether provisions of the model contract ensure that the
educational institution does not disclose student
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information to the card-issuing financial institution
beyond what is necessary for that institution to perform
the contracted financial aid award, scholarship,
campus-based aid award, or school refund disbursement
function; and,
h) Whether provisions of the model contract ensure that the
card-issuing financial institution does not solicit or
collect information from a student that is not necessary to
perform the contracted financial aid award, scholarship,
campus-based aid award, or school refund disbursement
function, as a condition of allowing the student to access
financial aid award, scholarship, campus-based aid award,
or school refund through a debit/prepaid/preloaded card
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
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) �
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 � 668.25).
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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 (Civil Code [CIV] � 1748.30).
4)Limits a debit cardholder's liability for unauthorized use of
a debit card (CIV � 1748.31).
5)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.
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 �
69432.9 and � 69433).
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, this bill has a
negligible fiscal impact.
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.
Title IV . Title IV of the Higher Education Act of 1965, as
amended, authorizes various programs that provide financial aid
to eligible postsecondary students enrolled in eligible programs
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at participating schools. Federal Student Aid, an Office of the
U. S. Department of Education (USDE), is responsible for
administering the Title IV programs, including overseeing the
activities carried out by schools, servicers and other entities
involved in administering the programs. The Title IV programs
include a variety of loans, grants and Federal Work-Study.
Need for the bill . According to the author, "One of the
challenges facing students and policymakers at the present time
is the highly individualized approach taken by California
campuses toward the contracts they enter into with financial
institutions for the disbursement of financial aid, scholarship
aid, campus-based aid, and school refunds onto
debit/prepaid/preloaded cards. Several of these contracts have
been criticized for failing to uphold the best interests of
students, yet, to date, no public or private higher educational
system in California has stepped in to provide guidance or
assistance to the individual campuses that are negotiating these
card contracts." The author contends that this bill would give
the state's public and private higher educational systems
responsibility for developing model contracts for use by the
campuses within their systems.
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 50 cents per swipe, $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. Additionally, the PRIG 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.
Recent federal actions . The 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 objectives of their review was to: 1) identify
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the methods, terms and conditions, and time frames for
delivering Title IV funds to students; 2) determine what
personal student information is provided by schools or collected
by servicers during the Title IV funds delivery process; 3)
identify school and servicer procedures for addressing student
complaints about the use of debit cards to deliver Title IV
funds; and, 4) determine how FSA monitors schools' and
servicers' delivery of Title IV funds through the use of debit
cards to protect students from inappropriate practices. 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 was released during the time that
the USDE was considering new debit card rules as part of a
wide-ranging rule making session on federal student aid.
The U. S. Government Accountability Office (GAO) issued a report
in February 2014, entitled, "College Debit Cards - Actions
Needed to Address ATM Access, Student Choice and Transparency"
and found that at least 852 schools, or 11% of U.S. colleges and
universities, have agreements to provide debit or prepaid card
services to their students as of July 2013, and most offered
students the ability to receive federal student aid and other
payments on a card. These schools were disproportionately
large; their enrollments constituted about 40% of all
postsecondary students. However, the percentage of students
enrolled in their schools' college card programs was unknown.
The GAO report also found that in the majority of agreements,
the schools also outsourced to their card provider the process
for paying financial aid and other funds via college cards and
other methods. Some schools also used college cards as student
identification. Additionally, although schools cannot require
students to use college cards, the GAO report raised concerns
about the extent to which students have been able to make fully
informed choices about whether to enroll in the debit or prepaid
cards their schools offer. The GAO report contends that
educational guidance on college cards does not currently address
the marketing of the cards or the extent to which schools must
inform students about financial aid payment options, although
schools are required to inform students of the terms and
conditions of college cards before an account is opened.
Last fall, USDE issued its Notice of Proposed Rulemaking in
order to create a negotiated rulemaking committee and tasked the
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committee to review many elements of student financial aid,
including, but not limited to, the cash management of funds
provided under Title IV programs, including the use of debit
cards and the handling of Title IV credit balances.
The committee was formed and met four times this year (February,
March, April, and May) to listen, discuss, review, and negotiate
the proposed draft regulatory language provided by the USDE.
During the last meeting, the rule making committee failed to
reach consensus on the issue of campus debit cards; as such, the
USDE is now able to propose whatever regulatory language it sees
fit without going through another rule making committee process.
Related legislation . AB 1162 (Frazier), which failed passage in
the Senate Banking and Financial Institutions Committee on July
3, 2013, would have required the BOG and the Trustees and
request the Regents 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 institutions and banks and other
financial institutions to disburse students' aid awards and
other refunds onto debit/prepaid/preloaded cards.
AB 1927 (Frazier), which is scheduled to be heard in the Senate
Education Committee on June 11, 2014, is similar in nature to AB
1162 (as described above).
SB 595 (Ron Calderon), Chapter 217, Statutes of 2013, which
among many, prohibited any CCC campus or CSU campus 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; the UC was also asked to comply with the
provisions of the bill.
REGISTERED SUPPORT / OPPOSITION :
Support
California Bankers Association
California Communities United Institute
California State Student Association
Community College League of California
Higher One
University of California Student Association
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Opposition
None on file.
Analysis Prepared by : Jeanice Warden / HIGHER ED. / (916)
319-3960