Utah-based Green Dot Bank, a small state-owned bank that provides financial products to some of the largest companies in the United States, including Apple and Walmart, today agreed to pay a previously disclosed $44 million fine from the Federal Reserve. Green’s shares fell 5.7% today to $9.26, down 85% from their all-time high of $63.44 set in October 2020.
In a statement released this afternoon, the Federal Reserve said the fine was due to “numerous unfair and deceptive practices and deficiencies in consumer compliance risk management programs.” According to the statement, Green Dot violated consumer law in connection with the marketing, sale and service of prepaid debit card products and the provision of tax return preparation payment services.
Specifically, Green Dot failed to adequately disclose refund processing fees for tax preparation services provided on third-party websites. Green Dot previously announced it had set aside $20 million to help pay the fine. Green Dot CEO George Gresham said in a statement that the bank has been working closely with regulators to prepare for public enforcement action.
“This order addresses practices that occurred years ago, and we have taken and will continue to take meaningful steps to correct and remediate these issues,” Gresham said in the statement. “Including significant updates to our processes, product packaging and marketing. “
wealth Green Dot’s collaborations with Apple and Walmart were previously reported. The bank is part of the recent “banking as a service” trend, in which chartered banks partner with technology companies to help them build services that only banks can provide.
Timothy Switzer, a financial analyst at financial services broker-dealer Keefe, Bruyette & Woods, wrote in an investor note that while the fine was higher than what the bank had initially set aside, it was lower than the $50 million the bank’s management had estimated as its maximum potential. loss. KBF estimates that the additional $24 million will reduce earnings per share by $0.35 to $0.44, depending on the tax deduction, which would be a 23% to 30% decline relative to current estimates.
“Importantly,” Switzer wrote, “the order does not impose any restrictions on GDOT’s business operations as management anticipated, suggesting that the direct financial impact will be limited to investment requirements.”
In addition to the fine, the Federal Reserve also requires 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 review certain trading activities.
The company’s second-quarter earnings are expected to be released on August 8, and further information should be provided.
