Pennsylvania-based Customers Bank wants to be the "anti-Higher-One."
Higher One is the financial services company that recently agreed to a settlement with federal bank regulators for improperly collecting more than $30 million in fees from students. Now, Customers Bank, headquartered in Wyomissing, is buying up Higher One's most controversial and criticized business and getting rid of the fees.
Customers Bank said Wednesday that it would offer students debit cards that could be filled up with their financial aid money and would charge no overdraft fees, PIN fees, or ATM fees in its 55,000 ATM network.
The company, which has $7.6 billion in assets and is the country's 115th largest bank, two weeks ago agreed to buy Higher One's disbursement business, which includes its fee-heavy OneAccount, for $42 million.
The Federal Reserve and Federal Deposit Insurance Corporation ordered Higher One and a bank partner to pay tens of millions of penalties and fee reimbursements for over 1 million students. Regulators slammed the company, saying it had used “deceptive marketing practices" in selling its One Account.
“During our due diligence at Higher One, we identified the regulatory and compliance risks of the high-fee based model that the company was using to make money from its student loan disbursement business,” Customers Bank chairman and chief executive Jay Sidhu said in a statement. Referring to the massive settlement, Sidhu said "With BankMobile, students can be confident this will never happen again."
The Higher One business will be part of Customers Bank's BankMobile business, which Customers describes as "America’s first absolutely no-fee, mobile, tablet and online bank."
The changes will go into effect when the deal closes next year. The BankMobile business launched in January and already has over 100,000 accounts, BankMobile's chief strategy and marketing officer Luvleen Sidhu told BuzzFeed News. With the Higher One acquisition, BankMobile will pick up 2 million new accounts and expects to add another 500,000 a year.
Higher One's fees — including out of network ATM fees and a 50-cent fee on PIN transactions — drew frequent and harsh criticism from activists and students, who said the fees were both high and, in the case of the PIN fee, almost unique among debit card providers.
The Department of Education released final rules that will go into effect next year that mandate schools offer a wider range of options for students to receive their financial aid money and require schools not to provide options with "excessive and confusing fees."
Sidhu said that because BankMobile is a bank — unlike Higher One, which had technology to disburse student aid money and then partnered with existing banks to provide services to students — they are not as dependent on account fees to make money.
BankMobile makes money from merchants when customers use their cards to buy stuff, what's known as interchange, as well as from the difference in the interest rate they charge customers for loans and the rate they provide on deposits. The bank said that it expected about $250 million in new deposits.
"We hope people will start using their debit cards more," Sidhu said. "We make money primarily through interchange income."
When Customers Bank announced its deal with Higher One earlier this month, it said that it expected $65 to $75 million of income, mostly from interchange.
In a statement, Sidhu said that "BankMobile will never charge an overdraft fee" and described the roughly $30 billion a year banks collect in overdraft fees as "outrageous."
Sidhu said that its student accountholders, like BankMobile accountholders now, won't have to pay any ATM fees if they have a monthly deposit. BankMobile will also provide a range of financial education services to its customers including podcasts, consultations, and "financial management tools" in its app.
"We have 4 years to convince them by giving them the best banking experience, we’re going to be treating them as true customers," Sidhu said.