FCAL ordered to pay fine, set up $1.1M restitution fund for prepaid card users
Westlake Village-based First California Financial Group has agreed to pay a $600,000 fine and set up $1.1 million in restitution to more than 64,000 consumers who used its prepaid debit card products.
The announcement from the Federal Deposit Insurance Corp. comes on the day that Los Angeles-based PacWest Bancorp’s $237 million acquisition of First California is set to close.
PacWest CEO Matt Wagner did not immediately return a request for comment on Friday morning.
The FDIC accused First California of engaging in “unsafe or unsound banking practices” related to the marketing and promotion of its prepaid debit card products.
First California moved into the prepaid card business in December 2010, when it purchased the electronic banking division and about $55 million in deposits from Palm Desert National Bank. “We have historically been just involved with deposit accounts,” First California Chief Financial Officer Romolo Santarosa told the Business Times in January 2011. “Recently we’ve been looking at different revenue ideas.”
That new revenue channel came from offering prepaid cards to consumers. Such prepaid cards have become a multibillion-dollar business in the U.S. and are popular primarily among consumers who can’t open traditional checking accounts or don’t have access to credit cards. Prepaid cards offer the convenience of plastic and a way to deposit money but often come with hefty fees.
According to a statement from the FDIC, First California and its affiliated business, Achieve Financial Services out of Austin, Tex., engaged in deceptive practices in the marketing and servicing of the AchieveCard, a prepaid, reloadable MasterCard. The FDIC said that the firms advertised free online bill pay and promoted certain services that were in fact not available to cardholders. The firms also charged cardholders fees that were not clearly disclosed, regulators said.
In its agreement with the FDIC, First California admits to no violations of the law or banking regulations but agrees to pay a $600,000 civil penalty and to set up restitution funds totaling approximately $1.1 million for consumers who used its prepaid debit card products between April 2011 and January 2013. Affected consumers are not required to take any further action and will be sent reimbursements from the banking firms.
FDIC spokesman Andrew Gray told the Business Times the settlement with First California does not affect the PacWest merger. “In fact, we wanted to get it out today to avoid confusion,” he said.
As the succeeding institution, PacWest will be liable for the restitution.
PacWest is expected to consolidate about a dozen branches in connection with the deal, likely resulting in substantial layoffs. The firm has not returned requests for comment regarding specific branch closures or the number of layoffs. In April, it laid off about 50 employees at First California’s headquarters in Westlake Village.