Alert June 11, 2013

FDIC Takes Enforcement Action Against Bank for Alleged UDAP Violations

The FDIC announced that it settled with a bank and an institutional affiliate for unfair and deceptive practices in violation of the FTC Act and violations of Treasury regulations governing the use of the ACH system to deliver federal benefit payments to prepaid debit cards. The FDIC alleged that the bank and its institutional affiliate engaged in unfair and deceptive practices in the marketing and servicing of a reloadable prepaid card offered by the institutional affiliate. In particular, the FDIC alleged that the bank and its institutional affiliated engaged in deceptive representations and omissions on the website with respect to advertising free online bill pay, promoted certain features and services that were not available to cardholders and charged fees that were not clearly disclosed. Further, it was alleged that the error resolution procedures imposed additional, undisclosed requirements on cardholders and in some cases violated Treasury regulations.

The terms of the settlements require restitution of approximately $1.1 million to over 64,000 cardholders and the payment of $710,000 in civil money penalties. In addition, the institutions are required to cease all unfair and deceptive acts or practices, strengthen their compliance management systems, including appointing a qualified compliance officer, establishing a compliance committee, and making periodic progress reports to the FDIC to ensure corrective action.