On a July 19, the Federal Reserve Board announced it has issued a consent order against a Utah-based bank and its parent company for engaging in unfair and deceptive acts and practices in violation of Section 5(a)(1) of the FTC Act, as well as for having a faulty consumer compliance risk management program. In addition to the consent order, the Federal Reserve imposed a $44 million fine.
The consent order covers the bank's activities over a five-year period, from 2017 through December 2022. Specifically, the Federal Reserve pinpointed the following alleged violations by the bank:
- Failing to Properly Disclose Tax Preparation Fees. According to the Federal Reserve, the parent company's subsidiary entered into an agreement with a tax preparer to provide tax preparation payment services to customers. The Fed alleges that this subsidiary participated in deceptive acts and practices by not disclosing the cost of a tax refund processing fee to the tax preparer’s customers. This fee was only revealed after a consumer clicked on a hyperlink and navigated through small-print disclosures.
- Assessing Fees on Closed Accounts. According to the Fed, the bank engaged in a deceptive act or practice by misleading consumers into believing that their prepaid debit cards would be closed after consumers spent their account balances down to zero. In fact, these accounts remained open and consumers continued to incur fees.
- No Telephonic Registration of Prepaid Debit Card Accounts. The Federal Reserve alleged that the bank engaged in deceptive acts and practices by falsely informing consumers that they could register their prepaid debit cards over the telephone as well as online, when, in reality, online registration was the sole option available. The agency contends this practice disadvantaged consumers without internet access.
- Blocked Access Without Appropriate Remedies. According to the Fed, the bank engaged in unfair acts or practices by blocking certain customers’ access to their state unemployment insurance benefits without offering a method to unblock their accounts.
- Extended Authorization Holds. The Fed alleged that the bank engaged in unfair acts or practices by failing to timely release extended authorization holds on certain prepaid debit card transactions, thereby denying consumers access to their funds.
- On top of the hefty fine, the bank is mandated to implement several new compliance measures subject to approval by regulators. These include developing a written plan to enhance oversight of the bank’s board of directors, creating a program designed to ensure the identification and reporting of all known or suspected violations of law or suspicious transactions, and revising the bank’s existing BSA/AML compliance program, among other initiatives.
Putting it into Practice: This enforcement action marks the latest in a series of measures taken by the Federal Reserve this year against banks for compliance deficiencies (previously discussed here and here). This case is particularly significant due to the Fed's invocation of various UDAAP claims under Section 5 of the FTC Act, mirroring similar actions undertaken by the CFPB. Both banks and fintech companies should thoroughly review their compliance procedures and consider necessary updates to ensure adherence to regulatory standards.