Regulations and new bill threaten campus debit card industry

This week's developments that touched on the issue of debit card services in college campuses could very well threaten the niche market of higher education financial services. Buzzfeed said that last night, House and Senate Democrats had proposed a bill that would ban schools from prioritizing a certain method of of disbursing financial aid refunds and revenue-sharing agreements between college and companies in order to market debit cards. Several powerful House and Senate Democrats, including, George Miller, Elizabeth Warren, and Dick Durbin, reportedly support the proposed bill that would require firms to submit any agreements that they have with financial institutions to the Consumer Financial Protection Bureau.

Earlier, an end of the "negotiated rulemaking" process of the Department of Education was seen, where a committee that included the chief operating officer of New Haven, Connecticut-based Higher One, Casey McGuane, failed to reach an accord on new rules that would govern the disbursement of financial aid. Buzzfeed said this would mean that the Education Department now has the freedom to propose a final rule without any input from higher education financial services companies. This would also mean that the new rules will be more stricter.

Compass Point analyst Michael Tarkan told BuzzFeed, "If that draft closely resembles the final rules, you're going to see a lot of changes with fees and marketing practices that would significantly impact [Higher One's] revenue and earnings."

Higher One's shares took a big tumble on Friday when it hit below $4, the viral news feed said. Thanks to the increased scrutiny of the federal government on companies who offer disbursement financial services via debt cards and checking accounts, Higher One might have to try very harder to survive considering the fact that its share price has already dropped 64% since regulations had been tightened.

Critics of companies like Higher One, applauded the seemingly concerted efforts of the Department of Education and lawmakers to clamp down outrageous fees, for one. Activist group head Chris Lindstrom, said about the latest efforts, "(Fuller disclosure of the arrangements between colleges and companies would remove )the rationale for building in aggressive and outrageous fees in the products to begin with, if the college wasn't making a lot of money with the fees."

Tags

Higher One, Department of Education, House of Representatives, US Senate, debit card fees in college accounts, Consumer Financial Protection Bureau

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