Green Dot Corporation, the registered bank holding company that owns and controls Green Dot Bank, has recently faced significant deficiencies in compliance risk management, as revealed in recent examinations by the Federal Reserve Bank of San Francisco and the Federal Reserve Bank of Dallas. The deficiencies include issues in consumer compliance and Anti-Money Laundering (AML) compliance, particularly related to the Bank Secrecy Act (BSA) and Regulation H of the Board of Governors.
One of the identified deficiencies was the assessment of fees on zero balance accounts, which occurred from November 2017 through January 2021. During this period, the Bank engaged in a deceptive act by misrepresenting that accounts would be closed after consumers spent their balances down to zero, when in reality, many accounts remained open, leading consumers to incur monthly fees.
Additionally, the Bank engaged in a deceptive act by misrepresenting the process of registering prepaid debit card accounts by telephone from June 2019 through December 2020. Furthermore, the Bank's lack of reasonable policies and procedures to permit legitimate customers to access their funds in prepaid debit card accounts receiving Washington state unemployment insurance benefits was identified as an unfair act or practice.
The Bank also failed to timely release extended authorization holds in connection with certain prepaid debit card transactions, resulting in reduced available account balances and denying consumers access to their funds.
Moreover, a nonbank subsidiary of the Holding Company, Santa Barbara Tax Products Group (TPG), engaged in deceptive acts or practices by failing to clearly and conspicuously disclose the full cost of tax refund processing fees to customers.
In response to these deficiencies, Green Dot is making enhancements to its consumer compliance risk management program and AML compliance program. However, additional substantive corrective actions are required to address the identified issues.
As a result, Green Dot, the Bank, and the Holding Company have agreed to an Order to Cease and Desist and Order of Assessment of a Civil Money Penalty by the Board of Governors. The Order includes various directives, such as the submission of a revised BSA/AML compliance program within 90 days of the order, along with other measures to ensure compliance with the FTC Act and to prevent future violations.
The Order also requires the Bank to engage an independent third party to conduct a review of its transaction monitoring activity to determine whether suspicious activity involving high-risk customers or transactions was properly identified and reported.
Following these announcements, the company's shares moved -5.7%, and are now trading at a price of $9.26. For the full picture, make sure to review Green Dot's 8-K report.
