A prepaid card company agreed to pay the Federal Trade Commission $53 million to settle charges that the company tricked consumers about access to their funds.

What happened

Last December, the FTC sued a prepaid card company that markets, sells and services prepaid debit cards, manages cardholder accounts, processes card transactions, performs dispute and fraud management services, and handles customer service for cardholders.

The company’s prepaid debit cards—including general purpose reloadable cards—are sold nationwide. Consumers can load cash on the cards at retail locations and have their paychecks, government benefits and tax refunds deposited directly onto the cards. Consumers can use the cards as they would a credit or debit card to make purchases, withdraw cash and pay bills.

Targeting unbanked and underbanked consumers, the prepaid card company touted its cards as available for immediate use with guaranteed approval and provisional credit provided for disputed transactions, the FTC alleged.

Marketing materials for the cards emphasized that consumers would have immediate access to the funds deposited on the cards, with claims including “Ready to use? Immediately,” “Instant access to money with no holds, no waiting,” “Use it today!” and “No waiting!” Similar claims were made for the guaranteed approval of consumers, as well as the speed with which the prepaid card company addressed account errors and applied provisional credits for funds subject to such errors, according to the agency.

But the promises were deceptive, in violation of Section 5 of the Federal Trade Commission Act, the agency alleged.

“Despite these claims, many consumers have been unable to use their cards immediately or access funds on their cards, including for prolonged periods of time—sometimes as much as weeks, or at all, meaning they never regain access to their own money,” according to the complaint. “Despite the prepaid card company’s claim of ‘guaranteed approval,’ the prepaid card company’s approval is contingent upon consumers meeting unexpected requirements; ultimately, many consumers have not been approved, and have lost funds they have already placed on the cards.”

But the parties elected to settle the case with a stipulated order for permanent injunction and monetary judgment in the amount of $53 million entered in Georgia federal court. Pursuant to the agreement, the prepaid card company is prohibited from a laundry list of future misrepresentations.

Specifically, the defendants are banned from misrepresentations of any fact regarding the length of time or conditions necessary before prepaid products will be ready to use or consumers will have access to funds; any fact regarding the length of time or conditions necessary to gain approval to use a prepaid product (including that consumers are guaranteed approval); any fact regarding the protections consumers have in the event of account errors; and the comparative benefits of the defendants’ prepaid products versus debit card accounts or other payment methods.

The defendants are required to work with third parties to remove problematic marketing and advertising materials and submit to record-keeping requirements and compliance reporting to the agency for a period of 20 years.

In addition, the prepaid card company agreed to provide monetary relief totaling “no less than” $53 million. Of that total, $40 million is allotted for customers, to reimburse account balances and the fees associated with opening accounts, with the remaining $13 million paid to the FTC. Any money not used for equitable relief will be deposited to the U.S. Treasury as disgorgement.

Approval of the deal split the commission, passing by a vote of 2 to 1. Commissioner Terrell McSweeny filed a statement expressing her support for the agreement, writing that the facts outlined in the complaint “clearly support” the allegations that the prepaid card company made deceptive representations about its card and violated the FTC Act, and that the monetary relief “effectively address” the challenged conduct.

“General purpose prepaid cards, such as the prepaid card company cards, can provide significant benefits to consumers, especially those who may not participate in or have access to the traditional banking system,” McSweeny wrote. “Nevertheless, as our action against the prepaid card company underscores, all marketers must provide truthful and complete information to consumers about their products.”

Commissioner Maureen K. Ohlhausen, who was designated by President Trump as acting chair of the FTC on Jan. 25, dissented from the approval of the settlement, arguing that the majority failed to consider the context of the prepaid card company’s representations and ordered monetary relief unrelated to the prepaid card company’s allegedly deceptive advertising.

“Context often has a significant effect on what reasonable consumers take away from representations in advertising,” she said. “In the context of direct deposit advertising, reasonable consumers would interpret ‘immediate access’ to refer to the timesaving benefits of direct deposit as compared to 1) waiting for a paper check to be mailed, 2) physically depositing the check at the bank, and 3) waiting for the bank to make those funds available in an individual’s account.”

Consistent with this interpretation of the prepaid card company’s claims, “I believe that the overwhelming majority of consumers received their funds on their prepaid card company cards before or on the date when the payer made the funds available for transfer,” she wrote.

Ohlhausen also took issue with the monetary relief imposed by the agency, which she believed was “not sufficiently related” to the claims against the defendants. “Some consumers place money on a card but never activate it,” she said. “Based on the evidence I have seen, I do not believe that consumers abandoned such funds because of the prepaid card company’s allegedly deceptive advertising.”

To read the stipulated order as well as the statements from the commissioners, click here.

Why it matters

The deal is notable not just for its size and subject matter (the FTC efforts in the deceptive advertising realm do not typically focus on the prepaid card industry and certainly not to the tune of $53 million) but also for a demonstration of the split among commissioners. Acting Chair Ohlhausen has repeatedly emphasized her position that agency action must be based on actual consumer harm, which she did not find was demonstrated in the prepaid card company action. “When, as in this case, the FTC misses the mark in its deceptive advertising enforcement and instead prohibits or limits truthful claims, we harm consumers and competition,” she wrote in her dissenting statement.