LOS ANGELES (CN) - Higher One Holdings preys on college students by giving them bank accounts and debit cards for their financial aid money, and then charging "deceptive, undisclosed and unconscionable service fees," a class claims in Federal Court.
Ventura College student Sherry McFall says her financial aid money was automatically deposited into a Higher One account like many American college students. Although Higher One is not a bank, it partners with co-defendant The Bancorp Bank to provide students with checking accounts, the lawsuit says.
Claiming that Higher One misrepresents itself as a "preferred banking provider" endorsed by colleges and universities, McFall said she did not realize she had other banking options.
The lawsuit quotes Securities and Exchange Commission filings that allegedly show 76 percent of students at participating schools banked with Higher One in 2009, making it the "default choice" on college campuses.
"Higher One has arrangements with hundreds of colleges and universities around the country whereby a student's scholarship, federal financial aid, and/or loan money is automatically deposited into a Higher One bank account," the complaint states. "Financial-aid refunds - the money left over after the school deducts its tuition and fees, which students are to use for things like books and living expenses-are automatically deposited into a Higher One bank account linked to a Higher One debit card. Students then may access their financial aid money at an ATM or a merchant that accepts MasterCard."
Students receive Higher One debit cards in the mail even before they matriculate, McFall says.
"Students are also bombarded with advertisements and emails encouraging them to use the Higher One cards to access their financial aid money 'immediately' and 'faster' than any other method," according to the complaint. "And students are forced to use a Higher One website in order to access their financial aid money. When, on that Higher One website, students are asked to choose how they would like their financial aid refund disbursed, Higher One concedes students' other banking options, deceives students about its excessive and unconscionable fees, and does not adequately disclose the full complement of fees students will be subjected to by Higher One."
McFall says Higher One charges fees that are not "reasonably avoidable" and raked in $66 million in convenience fees for 2010 alone.
Other fees are more modest, according to the complaint, which describes $25 a charge for students who try to move their money to another account, 50 cents for a PIN transaction fee, and $4.50 for using ATMs not owned by Higher One, which includes the ATM owner's $2 fee.
"Targeting financially unsophisticated students with excessive bank fees - and using scarce financial aid money to pay those fees - is unethical and immoral and makes it more difficult for students to meet legitimate education expenses," McFall claims.
The class seeks $5 million in damages for breach of contract, violation of California's Consumers Legal Remedies Act and violations of the Electronic Funds Transfer Act. It is represented by Hassan Zavareei with Tycko & Zavareei of Washington, D.C.
Neither Higher One nor Bancorp responded to emailed requests for comment.