Green Dot Fined $44 Million by Federal Reserve for Consumer Law Violations

The Federal Reserve fined Green Dot Bank $44 million for a deficient consumer compliance risk management program and unfair practices. The bank, which partners with Apple and Walmart, saw its stock fall by 5.7%. The fine does not impact its ability to serve existing customers.

Federal Reserve Fines Green Dot $44 Million for Compliance Failures, Partnering with Apple and Walmart

Green Dot Bank, a small Utah-based bank that offers financial products to some of the nation's largest corporations, such as Apple and Walmart, will be expected to pay a $44 million fine, as previously disclosed by the Federal Reserve. This was agreed upon today. The stock of Green's fell by 5.7% to $9.26 on July 20, and it is currently 85% below its all-time high of $63.44, which was achieved in October 2020. The fine does not affect the bank's capacity to provide services to its current consumers.

This afternoon, the Federal Reserve issued a statement stating that the fine was imposed due to "a deficient consumer compliance risk management program and numerous unfair and deceptive practices." According to the statement, Green Dot violated consumer law by marketing, selling, and servicing prepaid debit card products and providing tax return preparation payment services.

In particular, Green Dot neglected to adequately disclose the tax refund processing charge for tax preparation services offered on a third-party website. According to Fortune, Green Dot had previously disclosed that it had allocated $20 million to mitigate the sanction. In a statement, Green Dot CEO George Gresham stated that the bank had been collaborating closely with regulators to prepare for the public enforcement action.

“The order relates to practices in place years ago, and we have taken and will continue taking meaningful steps to correct and remediate those issues,” Gresham said in the statement. “Including significant updates to our processes, our product packaging and marketing.”

Green Dot's Banking-as-a-Service Model with Apple and Walmart Faces Challenges Amid $44 Million Fine

Fortune has previously reported on Green Dot's collaborations with Apple and Walmart. The bank participates in the banking-as-a-service trend, which involves chartered banks collaborating with technology companies to develop exclusive banking services.

In an investor note, financial analyst Timothy Switzer of financial services broker-dealer Keefe, Bruyette & Woods stated that the fine is higher than the bank's initial allocation. Still, the bank's management estimated less than the potential loss of $50 million. KBF anticipates that the additional $24 million will result in a 23% to 30% decline in earnings per share, contingent on tax deductibility, from its current estimate of $0.35 to $0.44.

“Importantly,” Switzer wrote, “the order did not place any restrictions on GDOT’s business operations, as management expected, indicating that the direct financial impact will be limited to investment requirements.”

Green Dot must hire an independent third party to strengthen its consumer compliance risk management program, develop an effective anti-money laundering program, and conduct a review of certain transaction activities in addition to the fine imposed by the Federal Reserve Board.

The company's second-quarter earnings results are expected to be released on August 8 and contain additional information.