The Federal Deposit Insurance Corporation (FDIC) reached a $16 million deal with a Utah bank recently, settling charges that the financial institution engaged in unfair and deceptive acts and practices.
Merrick Bank violated Section 5 of the Federal Trade Commission (FTC) Act in the marketing and servicing of its credit card add-on products, the regulator alleged. From 2008 to 2013, the bank touted its “PAYS Plan” as a payment protection card add-on product that provided a benefit payment toward a customer’s monthly credit card payment when triggered by life events such as involuntary unemployment, disability or hospitalization.
But the FDIC said the bank misrepresented that the payments would be made automatically, would protect the customer’s credit rating, and would equal the customer’s minimum payment due. Permanently disabled customers were also required to recertify their disabled status every month.
Further, the bank failed to disclose material conditions and restrictions to the PAYS Plan as well as the terms and conditions for accessing the hospitalization benefit, all in violation of federal law, according to the FDIC.
Pursuant to the settlement, the bank, without admitting or denying any charges of violations of law or regulation, will pay the U.S. Treasury a $1.1 million civil money penalty and provide $15 million for customer restitution. Merrick also agreed to amend and correct all negative incident reports made to consumer reporting agencies with regard to PAYS Plan customers consistent with the Fair Credit Reporting Act.
In addition, the consent order requires Merrick to comply with all applicable consumer protection laws going forward, including the FTC Act. To effectuate that requirement, the order specifies that the bank’s Board of Directors has 90 days to review, revise, develop, and/or implement a risk-based compliance management system to ensure compliance with all consumer protection laws, featuring comprehensive written policies and procedures and an effective training program.
To read the consent order in In the Matter of Merrick Bank, click here.
Why it matters: Credit card add-on products are on the radar for banking regulators, from a record-setting $772 million settlement between Bank of America and the Consumer Financial Protection Bureau to lawsuits filed by state Attorneys General to the instant $16 million action brought by the FDIC. Banks should continue to be diligent with respect to compliance with relevant regulations and statutes to avoid facing similar liability to the tune of tens of millions of dollars.