Green Dot Corporation, a bank and financial services company that has worked with Walmart, Apple, and the U.S. government, has been assessed a $44 million penalty in connection with years of harmful consumer practices, including some associated with tax refund fees.
The Federal Reserve System Board of Governors on July 19 announced the multi-million dollar penalty, and also issued a cease-and-desist order against the company.
“Green Dot violated consumer law in its marketing, selling, and servicing of prepaid debit card products, and its offering of tax return preparation payment services,” according to the Federal Reserve statement.
Overall, the 18-page order accused Green Dot of a variety of “consumer compliance breakdowns."
The company's alleged violations of consumer law included charging monthly fees on zero-balance accounts; blocking access to the accounts of customers getting unemployment benefits; and providing no means for customers to remove those blocks. The
Tax fees not fully disclosed: As for the tax component, the document alleges that from January 2017 through December 2022, Santa Barbara Tax Products Group, which has operated as a subsidiary of Green Dot since 2014, failed to adequately disclose the tax refund processing fee for tax preparation services offered on the website of a major tax preparer.
The order states —
The major tax preparer’s website offered customers the option to “pay nothing out of pocket” by deducting the tax preparation fee from the amount of their tax refund, but the website did not clearly and conspicuously disclose that customers also must pay a separate tax refund processing fee. Consumers had to click on hyperlinks located at the bottom of web pages or click on drop-down menus to reveal a lengthy list of small-print statements including the disclosure of the separate tax refund processing fee.
Santa Barbara Tax Products Group collected a share of the revenue from the fees.
Green Dot changes: The order does not identify the third party, but does note that website changes regarding the tax refund processing fee were made by 2022.
Still, said the Federal Reserve governors, “additional improvements related to unfair or deceptive acts or practices controls are required.”
Specifically, Green Dot must hire an independent third-party to strengthen its consumer compliance risk management program and address the root causes of consumer complaints.
The firm also must develop an effective anti-money laundering program and hire an independent third-party to conduct a review of certain transaction activities.
Green Dot response: “We’ve been working closely with our regulators on these matters and are pleased to confirm the consent order has been finalized,” said Green Dot CEO George Gresham said in a statement following the Federal Reserve action.
Gresham emphasized that “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.”
The company’s actions, he added, include “significant updates to our processes, our product packaging and marketing, our management team and our compliance programs.”
Taxpayer attention, too: Companies that provide services like processing and delivering tax refunds obviously must follow the law and rules.
But this recent Fed action in the Green Dot case, like those earlier by the Federal Trade Commission against tax prep giants Intuit/TurboTax and H&R Block, is a good reminder that clients also need to do due diligence.
Whenever you use a service to prepare your tax return and get you your refund, make sure you understand the process. Ask specifically about timing, delivery options, and, of course, all possible fees that could end up eating into your refund.
If the answers aren't clear, consider finding another option.
You also might find these items of interest:
- FTC slams TurboTax for deceptive free filing offers
- Tax refund advance business loses a banking partner
- Tax refund debit card pilot program raises Congressional questions
- FTC alleges H&R Block deleted customer tax data, used deceptive advertising
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