FDIC orders state bank to pay $1.375B

On April 18, the FDIC announced that it amended its 2023 consent order against an insured state nonmember bank, as well as issued a new order for restitution and order to pay, concluding the bank recklessly engaged in unsafe or unsound banking practices by failing to establish and maintain a compliance management system. The FDIC also alleged the bank violated several consumer protection laws including Section 5 of the FTC Act, TILA, the Servicemembers Civil Relief Act, and the Electronic Signatures in Global and National Commerce Act. Based on the FDIC’s examination, along with findings from the CFPB, the FDIC alleged that over a period of approximately 17 years the bank misclassified credit card accounts, in a manner that resulted in overcharging merchants via higher interchange fees. The bank neither admitted nor denied the allegations.

The bank was ordered to make restitution of at least $1.225 billion to affected parties and pay a civil money penalty of $150 million. The restitution plan must include a methodology for calculating amounts owed and a process for notifying affected parties. Additionally, the FDIC ordered the bank’s board to take corrective action to eliminate unsafe practices and address consumer harms identified in its 2021 examination. The board must ensure compliance with the order’s provisions, including developing a plan to classify accounts accurately. The engagement letter for this process must describe the work, provide the FDIC access to data, and require a comprehensive assessment report.

In a concurrent action, the Fed issued an order against the bank’s parent holding company which assessed a civil money penalty of $100 million and requires further corrective action.

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