On Tuesday, the Federal Reserve Board levied a $3.5 million penalty against Cole Taylor Bank of Chicago for its participation in deceptive practices with a former partner, Higher One, the leading provider of campus debit cards.
Cole Taylor will pay another $600,000 to the Illinois Department of Financial and Professional Regulation, for a combined penalty of $4.11 million.
"It is unconscionable for any company to seek profit by misleading customers about the terms of their financial accounts," Manuel Flores, acting secretary of the IDFPR, said in a statement. "Too many students and their families end up with a massive burden of education debt, so it is especially important to protect students from deceptive practices. I'm gratified by our efforts to protect these students' finances by holding a bank accountable for its unlawful business conduct."
The federal probe was first reported in April by The Huffington Post, and came two years after the Federal Deposit Insurance Corporation accused Higher One of violating college students' consumer rights, leading to an $11 million settlement.
The deceptive practices by Higher One, under Cole Taylor's oversight, included failing to provide students with material that would have made it clear they did not need to open an account with Higher One to get their financial aid reimbursement. The company was also found to have omitted certain information from its promotional materials, including information about fees and about the locations of ATMs where students could access their OneAccounts without cost, according to regulators.
In addition, when a student signed up for Higher One, the logo of his or her school would be prominently displayed on the card he or she was issued, which the Federal Reserve said "may have erroneously implied that the school endorsed" Higher One's products. This has been a prime concern about campus debit cards raised by consumer advocates and members of Congress in recent years.
Legislation presented in Congress this spring would prevent campus debit card providers from paying colleges and universities to link a student's ID with the bank account he or she held with those providers, a practice Higher One says it no longer engages in.
Cole Taylor served as one of the banks providing deposit accounts in connection with the OneAccount from May 4, 2012 to Aug. 14, 2013.
A spokesman for the Kineo Group, which represents Cole Taylor, said the bank has no additional comment.