The Federal Reserve Charges Green Dot $44 Million

The US Federal Reserve has imposed a $44 million fine on Green Dot for many unfair and misleading practices and a poor client compliance risk management framework. The regulator accused the digital bank of breaking consumer law when it advertised, sold, and provided prepaid debit cards. It also needed to follow some rules surrounding its tax return payment services.

The Federal Reserve Reveals Green Dot’s Failure To Follow Vital Rules

The Federal Reserve revealed several examples of these mistakes in its official order to Green Dot, first suggested in February this year. One of the issues is that the digital bank didn’t clearly show the fees for processing tax refunds for tax services on another company’s website.

The issue is related to Santa Barbara Tax Products Group (SBTPG), which started operations in 1991 but has been a part of Green Dot since 2014. According to its website, the group offers tax-related financial services and products that are valuable, reasonably priced, and meet consumer needs.

The regulator claimed that from January 2017 to December 2022, Santa Barbara Tax Products Group was involved in a deceptive practice. The Federal Reserve came to this conclusion because the group did not reveal the overall cost of its tax refund handling fees for the clients of a significant tax preparer it worked with.

The agency’s order revealed that the major tax preparer’s website gave customers the choice to pay nothing upfront by taking the tax preparation fee out of their tax refund. However, the website didn’t clearly show that customers also had to pay a separate fee for tax refund processing.

Green Dot Aims To Make Right Moves To Resolve The Latest Issue

Green Dot was also blamed for making it hard for people getting state unemployment benefits to access their prepaid debit card accounts. The Federal Reserve said the company needed to put the right policies and procedures in place in its system between May and June 2020.

Besides the fine, Green Dot must employ an independent third party to improve its consumer compliance risk management system. The company must also create a robust anti-money laundering (AML) program. The third party should be able to review some of the company’s transactions. Green Dot’s shares fell by over five percent in afternoon trading on Friday because of the latest charges.

George Gresham, the President, Director, and Chief Executive Officer of Green Dot, discussed the consent order. He said the digital bank has made and will keep making essential changes to fix these problems. This includes significant updates to its processes, marketing, management team, product packaging, and compliance programs.