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 does not impose any restrictions on the bank’s ability to serve its existing customers.
In a statement issued this afternoon, the Fed said the fine was due to “numerous unfair and deceptive practices and a flawed consumer compliance risk management program.” According to the statement, Green Dot violated consumer law in its marketing, sale and servicing of prepaid debit card products and its provision of payment services for tax preparation.
Specifically, Green Dot failed to adequately disclose tax refund processing fees for tax preparation services offered on a third-party website. Green Dot previously announced it had set aside $20 million to help cover the fine. Green Dot CEO George Gresham said in a statement that the bank was 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, including significant updates to our processes, product packaging and marketing,” Grisham said in the statement.
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 banks partner 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 estimated, financial analyst Timothy Switzer of Keefe, Bruyette & Woods wrote in a note to investors. KBF estimates that the additional $24 million would reduce earnings per share by $0.35 to $0.44, depending on the tax deductibility, a 23% to 30% reduction from its current estimate.
“Importantly, the order did not impose any 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 is expected to release its second-quarter earnings results on August 8, which are expected to provide more information.