A Connecticut law firm has filed a class action shareholder lawsuit in federal court against New Haven's Higher One, a company that offers debit cards to college students around the country.
The lawsuit, filed Tuesday in U.S. District Court in Connecticut, came less than two weeks after the company announced that a regulatory action related to marketing language and lack of disclosures in 2012 and 2013 could become so costly that it could default on $94 million in loans. The loans, which are part of a $200 million line of credit, come due in 2017.
"While we believe that it is probable that we will have a loss related to this regulatory matter," company officials wrote, they said it couldn't predict how expensive it would be, or when it would be resolved. The disclosure was in a Securities and Exchange Commission quarterly earnings report earlier this month.
Lawyers at Goldman, Gruder and Woods in Trumbull, representing a lead plaintiff in Florida, allege that Higher One misled investors in earlier disclosures about its regulatory woes.
The company had earlier disclosed that the Federal Reserve Bank of Chicago was investigating potential violations of the Federal Trade Commission Act during the 10 months Higher One and Cole Taylor bank partnered on a debit card program called the OneAccount, and that the enforcement actions could have a "material adverse effect" on Higher One's business and its financial condition.
But the lawsuit focuses on other assurances Higher One made — that the resolution of an FDIC enforcement action, which cost $11.1 million, was final, and that the company had changed the way it treated its customers.
Higher One spokeswoman Shoba Lemoine said the company has changed its practices drastically in the last two years.
"We've put in a lot more consumer-friendly safeguards. We've dropped a half a dozen account fees. We've made choices a lot easier," she said.
She said she could not elaborate on how penalties stemming from the investigation could risk a default on the line of credit. She said the company had earlier disclosed the investigation, and therefore "we do believe the lawsuit is without merit, and we are going to be defending ourselves vigorously."
Lawyers from Goldman, Gruder and Woods did not return a call requesting comment.
Higher One has agreed to settle a class action suit brought by former student customers over unfair account fees and deceptive marketing practices in 2012 for $15 million, but the agreement is awaiting a judge's approval.
The Federal Reserve of Chicago is not the last regulatory action that could affect Higher One, which had a 14.6 percent profit margin in the first quarter of the year. Higher One has about 1,000 employees.
The U.S. Education Department is working on new regulations on debit cards that are the home for financial aid balances, and although a top executive at Higher One is on the committee, the company wrote: "Several of the views expressed at the first session were unfavorable to certain of our current business practices."
The Consumer Finance Protection Bureau also has asked questions about Higher One's operations, the company has disclosed.Copyright © 2015, The Baltimore Sun