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The Federal Reserve Board on Friday fined Green Dot Corporation $44 million for a series of unfair and deceptive business practices. The fine relates to the company's violations of consumer protection regulations related to the marketing, sale and servicing of prepaid debit card products and tax filing payment services.
Green Dot Corporation, which operates Green Dot and GO2bank banking services, was found to have violated several consumer protection laws. These violations included inadequate disclosure of tax refund processing fees and blocking eligible customers from accessing their funds without adequate policies to address such issues. The Federal Reserve Board's actions underscore the importance of compliance in consumer financial services.
Findings from the Federal Reserve
The Federal Reserve's investigation, which also included audits of the Federal Reserve Banks of San Francisco and Dallas, found significant deficiencies in Green Dot's consumer compliance risk management. The most serious violations included misrepresentation of account closure terms, misleading prepaid debit card registration procedures, and inadequate measures to freeze legitimate customer accounts receiving unemployment benefits.
One notable finding was that Green Dot did not disclose the full cost of tax refund processing fees. From January 2017 to December 2022, the company's subsidiary, Santa Barbara Tax Products Group (TPG), offered tax return preparation payment services in partnership with a major tax preparer. However, the website did not clearly and prominently state that customers would incur a separate tax refund processing fee. This led many to be misled into thinking the only cost was the tax preparation fees deducted from their refund.
In addition, Green Dot came under scrutiny for its handling of prepaid debit card accounts. The company was found to continue charging monthly fees for accounts with zero balances despite assuring consumers that those accounts would be closed. In addition, the company deceived consumers about the ability to register prepaid cards over the phone, an option that was discontinued without proper notice, impacting those who did not have internet access.
Another serious error was that Green Dot blocked access to the accounts of legitimate customers receiving unemployment benefits in Washington state without providing adequate policies or procedures to remedy the situation. This practice left many customers without access to their funds during a critical time.
Requirements for the future
The Federal Reserve Board's order requires Green Dot to take several corrective actions. The company must engage an independent third party to improve its risk management related to consumer compliance and its anti-money laundering programs. This includes a comprehensive review of the company's transaction monitoring activities and developing policies to ensure transparent and fair treatment of customers.
Green Dot must also improve communication of fees and account terms to consumers and ensure that all information is accurate, clear and conspicuous. These steps are designed to eliminate the root causes of consumer complaints and prevent future violations.
The fine and required actions are intended to ensure that Green Dot operates in a manner that protects consumers and complies with all applicable federal and state laws. The enforcement action is intended to remind financial institutions of the importance of consumer protection and regulatory compliance.
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