FDIC Consent Order Restricts The Bancorp Bank’s Dealings With ISOs And Merchants

By Jim Daly

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The parent company of major prepaid card issuer The Bancorp Bank on Wednesday disclosed that the bank had entered into a consent order with the Federal Deposit Insurance Corp. that places restrictions on its dealings with independent sales organizations. The order also prevents the bank in some instances from issuing prepaid cards and originating automated clearing house transactions.

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The disclosure caused The Bancorp Inc.’s stock price to plunge 29% from Tuesday’s close of $16.20. At least four law firms announced they were looking into the matter, a precursor to possible shareholder lawsuits.

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A spokesperson for the FDIC said the agency would not comment today, but would post the consent order on its Web site in about a month. Wilmington, Del.-based The Bancorp Inc. did not respond to Digital Transactions News inquiries seeking comment or a copy of the consent order. The Bancorp Bank said in a Securities and Exchange Commission filing that it agreed to the consent order but did not admit or deny that it had violated the law or engaged in any unsafe or unsound banking practices.

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The bank’s disclosures came in the four-paragraph SEC filing. The consent order involves The Bancorp Bank’s compliance with the Bank Secrecy Act (BSA), a federal law that requires banks to assist the government in preventing and detecting money laundering. In 2011, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCen) issued a new rule bringing prepaid card service providers under the BSA’s wing.

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Under the consent order, The Bancorp Bank must appoint a BSA officer, revise its BSA written policies, develop new procedures for flagging suspicious activity, and take other steps to improve its BSA compliance. But the final paragraph of the filing suggests that The Bancorp Bank may have become the latest payments provider targeted by the feds in their efforts to prevent high-risk merchants and other third parties from getting access to the payments system and fleecing consumers.

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“Until approval by the FDIC of a BSA report for which the bank has already engaged a third party, the order places some restrictions on certain activities,” the filing says. “The bank will be restricted from signing and boarding new independent sales organizations; the bank will be restricted from issuing new non-benefit related reloadable prepaid card programs; and the bank will be restricted from originating automated clearing house transactions for new merchant-related payments.”

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The filing, however, makes no mention of Operation Choke Point, the government’s controversial program to cut off third parties from using banks to get access to consumers’ bank or card accounts. Many merchants provide prepaid cards for their customers, and some ISOs help them set up such programs through prepaid card services providers.

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The Bancorp Inc. said it does “not believe the restrictions will have a material impact on revenue.” According to its annual report, the company generated $45.3 million in prepaid card fees last year, up 36% from $33.3 million in 2012 and accounting for 54% of 2013’s total non-interest income of $83.4 million.