US Federal Reserve fines digital bank Green Dot $44 million over “unfair and deceptive practices”

Green Dot has been hit with a $44 million fine from the US Federal Reserve over “numerous unfair and deceptive practices and a deficient consumer compliance risk management program”.

Green Dot hit with $44m fine by the US Federal Reserve

In its latest action, the regulator says the digital bank “violated consumer law in its marketing, selling, and servicing of prepaid debit card products, and its offering of tax return preparation payment services”.

The Federal Reserve cites multiple examples of these failures in its consent order to Green Dot, which was first proposed in February this year.

Among these are allegations that the digital bank failed to correctly disclose tax refund processing fees for tax preparation services offered on a third party’s website.

This example pertains specifically to Santa Barbara Tax Products Group (SBTPG), which was founded in 1991 but has operated as a subsidiary of Green Dot since 2014, providing consumers with “tax-related financial products and services that provide value, are fairly priced and satisfy consumer need”, according to its website.

However, the Federal Reserve states that between January 2017 and December 2022, SBTPG “engaged in a deceptive act or practice” when it failed to disclose the full cost of its tax refund processing fees for the customers of a “major tax preparer” with which it had been contracted.

“The major tax preparer’s website offered customers the option to ‘pay nothing out of pocket’ by deducting the tax preparation fee from the amount of their tax refund, but the website did not clearly and conspicuously disclose that customers also must pay a separate tax refund processing fee,” the order states.

Authorisation and access failures

Elsewhere, the order also alleges Green Dot of hindering access to prepaid debit card accounts for recipients of state unemployment benefits “through its lack of reasonable policies and procedures” between May and June 2020.

That same year, between August 2020 and “at least September 2020”, a cited data migration error with an unnamed third-party payment processor contracted by Green Dot resulted in the digital bank failing to “timely release extended authorization holds in connection with certain GPR prepaid debit card transactions made by consumers”.

It claims that this error meant that transactions were not authorised until “several days after the settlement of the transactions, thereby reducing available account balances and denying consumers access to their funds”.

In addition to these failures, the Federal Reserve claims to have also identified “certain significant deficiencies relating to Green Dot’s compliance risk management framework, including, but not limited to deficiencies in consumer compliance and compliance with applicable federal and state laws, rules, and regulations relating to anti-money laundering (AML) compliance”.

Corrective measures outlined in the order include the installation of an independent third-party to “strengthen its consumer compliance risk management program and address the root causes of consumer complaints”.

Green Dot is also required to “develop an effective AML program and hire an independent third-party to conduct a review of certain transaction activities”.

‘Meaningful steps’

In a statement published in conjunction with the issuance of the consent order, Green Dot director, CEO and president George Gresham promises that the digital bank has “taken and will continue taking meaningful steps to correct and remediate those issues, including significant updates to our processes, our product packaging and marketing, our management team and our compliance programs”.

“We are committed to cooperating and partnering closely with our regulators to ensure all concerns noted in the consent order are addressed and complied with and that our customers are well-served and protected on an ongoing basis,” Gresham’s statement continues.

“As stewards of our customers’ valued resources, we take this commitment and responsibility very seriously. We remain optimistic about our financial and regulatory positions as well as our future growth potential and opportunity as we serve and empower customers directly and through our partners.”