The Federal Deposit Insurance Corporation announced May 31 that it had reached settlements totaling $1.1 million with First California Bank and Achieve Financial Services LLP in regards to regulatory violations. The FDIC not only assessed a penalty against the bank, but it also charged the program manager a fine.
The FDIC determined that Achieve and FCB engaged in unfair and deceptive practices in violation of Section 5 in the marketing and servicing of the AchieveCard, a prepaid, reloadable MasterCard. A number of the representations and omissions on Achieve’s website were deceptive, such as advertising free online bill pay, promoting certain features and services of the AchieveCard that were not available to cardholders, and charging fees that were not clearly disclosed. Achieve’s error resolution procedures imposed additional, undisclosed requirements on cardholders. For applicable consumers, these additional, undisclosed requirements and the failure to provide other appropriate protections violated both Section 5 and the Treasury Rule.
In its consent order to Achieve, the FDIC said its authority came from the Federal Deposit Insurance Act because Achieve is “an institution-affiliated party” of its issuer. The statute’s definition of “institution-affiliated party” includes “any independent contractor…who knowingly or recklessly participates in – (A) any violation of any law or regulation.
The upshot of all of this is that this action shows that the regulators will look at every aspect of a prepaid program and include all of the members of the value chain under their purview. The OCC has already issued guidance to the national banks about this and now the FDIC has shown it will do the same for state-chartered banks that it regulates. It speaks to the need for thorough vetting and on going monitoring of partners.
Read the documents at the links below. Registration is free to access the Payments Journal Library.