A financial institution specializing in student loans received a fine as well as orders to cease operations for lying to students about fees and costs associated with their offerings.
The Federal Reserve Board ordered Higher One, Inc. to pay a civil money penalty of $2.2 million in addition to refunding $24 million in fees to about 570,000 students who opened accounts with the company. Students "who opened accounts with Higher One while Higher One's website and marketing materials were deceptive” qualify for the payment, the Federal reserve said in a press release.
"Deceptive marketing practices with respect to student loans will not be tolerated,” said Lael Brainard, Federal Reserve Governor, adding that the punishment against Higher One will set an example for all financial institutions. "This action ensures that students who were misled into paying fees to access their financial aid funds will receive restitution for those fees."
The Federal Reserve Board concluded that Higher One omitted material information about financial aid disbursement, misleading students about “fees, features, and limitations” of the firm’s OneAccount product, and that it misled students into thinking their schools endorsed the company’s product.
"The order addresses deceptive practices by Higher One that misled students who obtained financial aid disbursements from institutions of higher education through Higher One,” the Federal Reserve said, adding that Higher One deceived students between May 2012 and December 2013, when Higher One cleaned up its act.
“Our Goal: Student Success"
Despite the deceptive marketing, Higher One aggressively promotes itself as a company that focuses on facilitating students’ learning. "Higher One has always had higher education at its core. When it was founded by three students in 2000, Higher One’s initial goal was to create an electronic process that would allow students to get their financial aid refunds faster and save colleges time and money,” the company says on its website.
Higher One is a publicly traded company with a market cap of over $158 million, after losing over 78 percent of its stock value since the company’s initial public offering in June 2010.
Higher One’s CEO, Marc Sheinbaum, earned over $3.1 million in 2014. Before joining Higher One, he worked for several financial institutions, including American Express, JP Morgan, and GE Money Services.
Sheinbaum gained his appointment as CEO after the deceptive practices. His predecessor, Mark Volcheck, now serves as the Managing Director of Top Floor Capital and works for Blue Heron Capital. He co-founded Higher One in 2000, and remains Higher One’s CFO, earning $247,000 in 2014 after earning $3.3 million in 2013, the year the deceptive practices ended.