Prepaid debit cards are marketed as simple financial tools for people who want to avoid banks. The Federal Reserve found that one of the biggest issuers in the business was making things anything but simple, and it fined the company $44 million for it.
The Federal Reserve announced the action against Utah-based Green Dot, which issues prepaid debit cards, after finding numerous unfair and deceptive practices along with deficient risk management. The company violated consumer law in the marketing, selling, and servicing of its prepaid debit card products, as well as its tax return preparation payment services, according to the central bank.
The details are where it really sucks. Green Dot failed to adequately disclose the tax refund processing fee for tax preparation services offered on a third party's website, meaning customers did not clearly see what they were paying to get their own refunds. The firm also improperly blocked the accounts of legitimate customers receiving unemployment benefits, and lacked reasonable policies and procedures to help those customers fix the blocks. Picture losing access to your unemployment money during a rough patch and finding no path to get it back. The company also lacked effective consumer compliance risk management and anti-money laundering programs.
The enforcement order requires Green Dot to take several corrective steps. The firm must hire an independent third party to strengthen its consumer compliance risk management program and address the root causes of consumer complaints. It must develop an effective anti-money laundering program, and an independent third party must review certain transaction activities.
Green Dot CEO George Gresham responded that the issues related to practices from years ago, and said the firm was committed to addressing its shortcomings and working with regulators. That is the standard corporate line after a big fine: the problems are old, the fixes are underway, please look at our roadmap instead of our rearview mirror. It may even be true. But "years ago" is cold comfort to a customer whose unemployment benefits were locked up with no way to appeal.
The case is a reminder that financial products aimed at vulnerable consumers deserve the most scrutiny, not the least. Prepaid cards are often used by people without traditional bank accounts, people receiving government benefits, and people with the least room in their budgets for surprise fees. When disclosure fails for those customers, the harm lands hardest.
The practical lessons are evergreen: read fee schedules before signing up for any card, keep records of every deposit and charge, and know the customer service escalation path before you need it. And if a company blocks your money without explanation, file complaints with the regulator that oversees it. That $44 million did not appear because everyone stayed quiet. That would have sucked even more.