The Federal Reserve Board has recently imposed a fine of $44 million on Green Dot Corp., a financial technology company with ties to Walmart. The fine is a result of an investigation which was initiated due to customers losing access to their funds due to changes made by the company.
Green Dot Corp. is a preeminent financial technology company and a bank holding company, which specializes in ideal payment and financial services. The company offers an array of services, that are inclusive of prepaid debit cards among other consumer banking products. It is also recognized for its provision of debit cards that are sold at various Walmart stores nationwide.
In May, 2019, Green Dot’s sudden change in its debit card technology was the catalyst for the operational crisis. Customers of the prepaid debit card company were abruptly unable to gain access to, or use their funds. This unexpected move evoked a surge of complaints that was especially concerning to the Federal Reserve Board.
Investigations undertaken by the Federal Reserve Board reveal that Green Dot failed to appropriately manage risks in connection with their transfer and transformation in payment processing from their in-house setup to an outsourced one in May of 2019. The company’s deficiencies were discovered to be in their overall risk management connected to significant changes to business processes.
One of the major factors that exposed their customers to potential financial harm was the insufficient infrastructure they had in place to handle issues pertaining to stopping, enhancing or transferring business processes which consequently created the inability for customers to access their funds.
According to the Enforcement Action report by the Federal Reserve, Green Dot was unable to quickly respond to issues that emerged during the migration, which resulted in widespread processing errors. These errors left many customers unable to access or manage their funds, causing significant financial harm. Additionally, the company was found guilty of providing inadequate customer service in response to the errors, further exacerbating the issue.
The Federal Reserve’s actions have led to Green Dot paying a penalty of $43 million in redress to customers that were directly affected by their operational breakdowns. In addition to this, the company also incurred a civil money penalty of $1 million.
In response, Green Dot Corp. pledged to make internal changes to ensure the company doesn’t repeat the same mistakes in their future operations. It has made a commitment to enhance numerous aspects of its compliance and risk management program in order to avert posing any future harm to its customers.
In conclusion, the Federal Reserve’s imposition of the fine underscores the importance of risk management and the potential for harm to customers when changes are not managed appropriately by financial institutions. Companies such as Green Dot Corp. are expected to have proper frameworks and customer service protocols in place to ensure seamless operations and, more importantly, trust among their consumers.
