Commercial Bank Settles CFPB and OCC Charges for Unfair Practices in Connection with Prepaid Card Program

A commercial bank settled parallel CFPB and OCC charges for (i) deceptive practices in marketing prepaid debit card program and (ii) deficiencies in its operational and risk management controls.

In separate orders (see here and here), the regulators found that the bank engaged in unfair practices by (i) using an automated fraud filter rather than more reasonable fraud detection, which resulted in the freezing of many legitimate cardholder accounts; (ii) retroactively applying the filter to previously paid error determinations, thereby reversing some submissions the bank had already paid out; (iii) impeding cardholders' efforts to file notices of error and seek liability protection from unauthorized electronic fund transfers by restricting how the notices could be submitted; and (iv) failing to address these issues in a timely manner, among other determinations.

As a result, the CFPB found that the bank violated (i) CFPB Section 1031 ("Prohibiting unfair, deceptive, or abusive acts or practices") and Section 1036 ("Prohibited acts"), (ii) EFTA Section 908 ("Error resolution") and Section 909 ("Consumer liability") and (iii) Regulation E ("Electronic Fund Transfers") and Rule 1005.11 ("Procedures for resolving errors"). The OCC determined that the bank violated FTCA Section 5 ("Unfair methods of competition unlawful; prevention by Commission").

To settle the charges, the bank agreed to pay a $100 million penalty to the CFPB and a $125 million penalty to the OCC, which includes restitution. The bank will undertake corrective action to improve its oversight of the program, as well as its contract review and approval process.