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Higher One sued again over students' OneAccount cards

What would you do if I offered you a debit card that worked with your student loan accounts? You're going to want it because it gives you immediate access to your student loans. If you direct deposit those funds, they'll take a week to clear. Same goes with a paper check, except that one of those will take 21 days to clear. Wouldn't you rather use this debit card so you can have your money now?

Oh, one thing: Your overdraft fees will be the equivalent of 7 percent on the balance of your account.

Interested? You shouldn't be. Other banks don't charge fees that high. So, why have so many students signed up for an account like this? It might be the co-branding the accounts have with the colleges -- a "Mustang card" for a school with that mascot, for example.

Or, it might be deceptive advertising. One student cardholder has brought a class action against Higher One Holdings accusing it of deceptive advertising and unconscionable fees in regards to its OneAccount debit cards.

Can you discharge OneAccount fees in bankruptcy? Yes.

There's a lot of misinformation about student loans and bankruptcy out there, so we want to make clear that there is nothing preventing students from discharging these fees in Chapter 7 or reorganizing them under Chapter 13. Student loans are almost impossible to get discharged in bankruptcy, but these cards are not student loans -- they are only co-marketed with student loans.

That said, a debit card works by taking money out of an established account, in this case a student loan. It doesn't create a credit relationship itself, so you have no loan to discharge. Your student loan may represent some or all of the money being debited from, but it's separate from the card. If you can't get the student loan discharged, bankruptcy could only help you with the interest and fees on the account.

Excessive fees are being charged to students with taxpayer-subsidized loans?

Yes, and that's part of the problem. Worse, according to the lawsuit, this is hardly the first time that Higher One has gotten in trouble with its OneAccount debit cards. Apparently, Higher One reached a settlement with two other classes of students, compensating them in the amount of $15 million. A FDIC consent decree the following year cost it another $31 million for misleading OneAccount cardholders. In 2015, the Federal Reserve issued Higher One a cease-and-desist order and a $24 million penalty.

"Despite the penalties it had received, and its promises to change its behavior, Higher One continued to profit from deceptive practices and improper fees," reads the current lawsuit.

Borrower beware.

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