Green Dot Bank, a small Utah-based bank that backs financial products at some of America’s largest companies — including Apple and Walmart — today agreed to pay a $44 million fine previously disclosed by the Federal Reserve. Green’s stock fell 5.7% today to $9.26, now 85% below its all-time high of $63.44 hit in October 2020. The fine places no restrictions on the bank’s ability to serve its existing customers.
In a statement released this afternoon, the Fed said the fine was due to “numerous unfair and deceptive practices and a deficient consumer compliance risk management program.” According to the statement, Green Dot violated consumer law in its marketing, sale and service of prepaid debit card products and its offer of payment services for tax preparation.
Specifically, Green Dot failed to properly disclose tax refund processing fees for tax preparation services offered on a third-party website. Green Dot previously announced that it had set aside $20 million to help cover the fine. Green Dot CEO George Gresham said in a statement that the bank is working closely with regulators to prepare for public enforcement action.
“These are practices that have been in place for years, and we have taken and will continue to take meaningful steps to correct and address these issues,” Grisham said in the statement. “Including significant updates to our processes, product packaging and marketing.”
luck Green Dot has previously been reported to be working with Apple and Walmart. The bank is part of a new trend called banking as a service, where established banks work with technology companies to help them build services that only banks can offer.
While the fine is larger than the bank initially set aside, it is less than the maximum potential loss of $50 million that management estimates, financial analyst Timothy Switzer of brokerage Keefe, Bruyette & Woods wrote in a note to investors. KBF estimates the additional $24 million will reduce earnings per share by $0.35 to $0.44, depending on the tax credit, a 23% to 30% reduction from its current estimate.
“Importantly, the order placed no restrictions on GDOT’s business operations, as the administration had anticipated, suggesting that the direct financial impact would be limited to investment requirements,” Switzer wrote.
In addition to the fine, the Federal Reserve is requiring Green Dot to hire an independent third party to strengthen its consumer compliance risk management program, develop an effective anti-money laundering program, and hire an independent third party to conduct a review of certain transaction activities.
The company’s second-quarter earnings results are expected to be released on August 8, and should provide more information.
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