As college students head off to school, they have to figure out how to set up their banking and receive their financial aid. Consumer Reports partnered exclusively with On Your Side for a report on certain things to watch out for.
Campus-sponsored bank accounts and prepaid cards may seem an easy and convenient choice. And they often also serve as student IDs, but Consumer Reports has found some of these accounts could be a fee trap.
In a promotional video for Higher One, a representative said, " Higher One allows you to manage your money easier and get your refund fast."
Higher One is the biggest player in campus banking and says it offers cards at more than 800 institutions nationwide.
Consumers Union, the Advocacy Arm of Consumer Reports, looked at Higher One and eight other companies that offer campus-sponsored accounts.
Staff attorney Suzanne Martindale says students should be very careful about signing up for them. "We've seen high and unusual fees, the kinds of fees you wouldn't typically see on a regular retail bank account," she said.
Fees from the various companies can include overdraft fees as high as $38, a fee each time you use the debit card of 50 cents. Out-of-network ATM charges that can run as high as $3 and even an inactivity fee if you don't use your account.
Consumers Union found that while some of the accounts it analyzed have low-cost options, students need to use the accounts carefully or risk incurring hundreds of dollars a year in usage fees. So why would anyone sign up for a campus-sponsored account?
"Many students find it difficult to avoid signing up for these products. It may be the default option to manage their financial-aid money and they're being nickel-and-dimed out of that aid," Martindale said.
In fact, a class-action lawsuit against Higher One alleges aggressive and deceptive marketing and a failure to disclose unconscionable fees.
Students don't need a campus-sponsored account to get their financial aid. By federal law, you can have it directly deposited to an existing account or get cash or a check.
The lawsuit against Higher One is expected to settle this fall for $15 million. There is no admission of wrongdoing, but Higher One has agreed to drop some of the worst fees. Still, Consumers Union is concerned most of the aggressive marketing tactics remain untouched and believes regulators should step in to protect students from campus banking arrangements that restrict choices and charge unfair fees.
7 On Your Side, Consumer Reports offer students tips on banking, financial aid
7 ON YOUR SIDE
More 7 On Your Side
More Personal Finance