Green Dot Bank, the small, state-chartered bank in Utah that distributes financial products to a few of America’s largest corporations — including Apple and Walmart — today agreed to pay a $44 million superb previously announced by the Federal Reserve. Green’s stock fell 5.7% to $9.26 today and is now 85% below its all-time high of $63.44 reached in October 2020. The superb on no account limits the bank’s ability to serve its existing customers.
In a press release released this afternoon, the Fed said the superb was imposed for “numerous unfair and deceptive business practices and a deficient consumer risk management program.” According to the statement, Green Dot violated consumer law within the marketing, sale and servicing of prepaid debit card products and in the supply of payment services for tax return preparation.
Specifically, Green Dot didn’t adequately disclose the tax refund processing fee for tax preparation services offered on a third-party website. Green Dot had previously announced it had put aside $20 million to cover the superb. Green Dot CEO George Gresham said in a press release the bank had been working closely with regulators to arrange for the general public enforcement motion.
“The order addresses practices that were implemented years ago, and we have taken and will continue to take significant steps to correct and fix these issues,” Gresham said within the statement. “This includes significant updates to our processes, product packaging and marketing.”
Assets previously reported on Green Dot’s collaboration with Apple and Walmart. The bank is an element of a current trend called “banking-as-a-service,” during which chartered banks partner with technology corporations to assist them construct services that only banks can offer.
Financial analyst Timothy Switzer of economic services brokerage Keefe, Bruyette & Woods wrote in a note to investors that while the superb is higher than the bank’s original estimate, it’s lower than the bank’s management’s estimate of the utmost potential lack of $50 million. KBF estimates the extra $24 million will reduce earnings per share by $0.35 to $0.44, depending on tax deductibility, a decline of 23 to 30 percent from the present estimate.
“Importantly,” Switzer wrote, “the order did not impose any restrictions on GDOT’s operations, as management expected. This indicates that the direct financial impact will be limited to capital expenditure needs.”
In addition to the superb, the Federal Reserve Board is requiring Green Dot to interact an independent third party to strengthen its risk management program to comply with consumer regulations, develop an efficient anti-money laundering program, and interact an independent third party to review certain transaction activities.
The company’s second-quarter results are expected to be released on August 8 and may provide further information.
