HARTFORD (CN) – College students sued Higher One Holdings and Bancorp Bank in a federal class action, claiming they automatically create bank accounts for students’ financial aid and then charge them “numerous unconscionable and unusual bank fees.”
Seven named plaintiffs from across claim New Haven-based Higher One has such arrangements with hundreds of colleges and universities around the country. Essentially, Higher One acts as a middleman between a college business office and a student’s financial aid account, according to the complaint.
Named as defendants are Higher One Holdings Inc., The Bancorp Bank, the Urban Trust Bank, and Wright Express Financial Services Corp.
“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,” the complaint states.
The students say the financial aid is put into such accounts by default, and Higher One makes it difficult to opt out.
The company “uses three tactics to make sure that students do not opt out of this default: first, it bombards students with unsolicited and deceptive marketing materials second, it intentionally delays access to financial aid funds for students who choose to use other banking providers; third, it conceals the true costs of the Higher One accounts,” according to the complaint.
Students who need their financial aid money immediately are unable to opt out, the class claims.
“Because, almost by definition, financial aid recipients are dependent on their financial aid money to survive, Higher One coerces students to remain in the default option and use Higher One accounts in order to have immediate access to their funds,” the complaint states.
Higher One, the brainchild of Yale undergraduates, makes sure that students don’t opt out of the accounts it creates for them, the class claims.
“Higher One has stated that approximately 80 percent of students remain in the ‘default’ option. Higher One then proceeds to assess and collect deceptive, unusual, unconscionable, and in many cases unavoidable bank fees on these ‘captive’ banking accounts,” according to the complaint.
The students charged these fees are often “students who can afford them the least,” the class claims. “Many students pay Higher One’s unconscionable bank fees with borrowed money, often at 7 percent interest or higher. Other students receiving grant aid are low-income with a high level of need.”
The class seeks more than $5 million in damages, and restitution of all PIN-based transaction fees and non-Higher One ATM fees. They also want Higher One to admit it engaged in deceptive practices.
The class claims defendants Bancorp Bank, Urban Trust Bank, and Wright Express Financial Services partner with Higher One to provide the checking services.
The class is represented by Karen Leser-Grenon of Shepherd, Finkelman, Miller and Shah, in Chester, Conn.