On December 23, the FDIC and Federal Reserve each announced settlements in closely related enforcement actions against a bank and a company that distributed financial aid refunds. The FDIC settled its claims for deceptive practices in violation of Section 5 of the Federal Trade Commission (FTC) Act with each defendant. The Federal Reserve brought its Section 5 claim against only the financial aid company.
According to the FDIC and Federal Reserve, the financial aid company provided a service “whereby schools could outsource the financial aid refund disbursement process, resulting in time- and cost-savings for the schools.” Schools are required to provide financial aid refunds to students when the amount of financial aid received by the school exceeds the amount of tuition and other disbursements, typically for books and living expenses. The product at issue in these enforcement actions was “a debit card-based product that is offered in partnership through financial institutions” including the member bank. According to the FDIC and Federal Reserve, the financial aid refund disbursement company’s website and associated materials, which were approved by the bank, “omitted material facts about certain fees, features, and limitations” of the debit card-based product in violation of Section 5. “The omissions included details about other disbursement methods available to students, a full and complete fee schedule, and the availability of fee-free ATMs.”
Due to these omissions, the company collected $31 million in fees from students during the applicable time period–May 2012 to July 2014. The FDIC consent orders require the financial aid company and bank to pay civil penalties of $2.23 million and $1.75 million respectively, and to jointly pay restitution of $31 million to roughly 900,000 affected consumers. The Federal Reserve consent order requires the financial aid company to provide $24 million in restitution to roughly 570,000 students and pay a civil penalty of $2.23 million.
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