WEX Bank, a subsidiary of the South Portland payment processing company WEX Inc., could be liable to pay as much as $31 million in restitution to college students if a Connecticut-based company the bank is affiliated with cannot cover the restitution amount.
On Wednesday, the Federal Deposit Insurance Corp. announced that it had reached settlements with WEX Bank and Higher One Inc., based in New Haven, for their parts in a marketing deception that targeted college students. The federal agency said Higher One, a company that handles disbursements of financial aid awards for college students, failed to disclose fees and other limitations of its debit-card program to college students. WEX Bank approved the OneAccount program, according to the FDIC.
The settlements require WEX Bank to pay a civil penalty of $1.75 million, while Higher One faces a penalty of $2.23 million.
In addition, Higher One will have 10 days to reserve $31 million to pay restitution to about 900,000 of the college students the FDIC says were affected by the marketing deception. However, if Higher One “has not reserved or deposited, in whole or in part, a total of $31,000,000” into an account to make restitution, then WEX Bank will have 10 days to cover the shortfall, according to the FDIC consent agreement with WEX.
Higher One is required to cover the $31 million, but if it doesn’t have the funds to make full restitution, then WEX Bank would be liable, said Barbara Hagenbaugh, an FDIC spokeswoman.
Phone calls and emails to members of WEX’s communications team went unanswered since Wednesday night.
WEX Bank is a wholly owned subsidiary of WEX Inc., part of its payment processing division handling corporate payments. The bank was created in 1998 and is based in Midvale, Utah.
Started in 1983 as a payment processor for companies with fleets of vehicles, WEX has expanded to offer global payment processing services to corporations, including the health care and travel industries.
According to the FDIC consent agreement, WEX’s banking subsidiary has received deposits from HigherOne. WEX’s website lists an education division called WEX Education, but it’s geared toward providing educational institutions with a virtual payment system to pay suppliers. The bank is not in the student loan business.
Attempts to reach equity analysts who track the publicly traded WEX for comment were not successful. The company reported revenues in excess of $817 million last year.
News of the fine and possible restitution payment did not affect WEX’s stock, which rose 44 cents to $90.30 Thursday.
The FDIC settlements stem from a partnership between Higher One and WEX Bank that goes back to May 2012. The FDIC concluded that the Higher One website and associated materials, which were approved by WEX Bank, omitted facts about certain fees, features and limitations of its debit card “OneAccount” product, which allows students to pay for things like books, supplies and living expenses after payment of tuition and other expenses owed directly to a college or university.
Specifically, the FDIC found that Higher One did not inform students that there were other options available besides the OneAccount, and did not provide a full and complete fee schedule or explain the availability of fee-free ATM services.
“Information about certain fees, features, and limitations of the OneAccount was omitted entirely or was not clear and conspicuous,” the consent agreement read.
The violations “resulted in deceptive acts or practices in or affecting commerce” and “unsafe or unsound banking practices,” according to the FDIC consent agreement with WEX.
In addition to the civil penalty and potential restitution, WEX Bank agreed to within 90 days perform a full review of all compliance policies and monitoring procedures, as well as all employee training programs “to ensure compliance with all Consumer Protection Laws.” The bank also agreed to create a compliance committee with at least one member of senior management, the compliance officer, and at least two outside directors who are not officers of the bank or a bank affiliate.
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