A decision by the Federal Reserve Board (FRB)last week wraps up an issue the Mid America Bank and Trust Company (MABTC), headquartered in Dixon, has been facing for several years.

The FRB has issued a consent order against MABTC that requires the organization to "pay approximately $5 million in restitution to nearly 21,000 consumers," according to a press release from FRB.

The consent order is a result of issues related to the transferring of balances on credit cards by third party companies known as Independent Service Organizations (ISOs) used by MABTC. FRB said that "deceptive marketing practices" were the main issue.

"Under the terms of the Consent Order, Mid America will be required to refund fees paid by cardholders in connection with the deceptive marketing practices and, for certain consumers, refund the total qualifying payments and waive the remaining transferred balance. Mid America also will be required to take other corrective measures to remediate consumers' injuries, improve consumer compliance programs, and avoid violations of section 5 of the Federal Trade Commission Act in the future," FRB said in a press release about the consent order.

According to the consent order, some of the ISOs purchased "charged-off or past-due consumer debt from financial institutions" offering the consumers products that would allow them a chance to repay some or all of the debit.

"These products involve issuing the consumer a credit card and forgiving a portion of the debt in return for in some instances requiring payments on the debt to qualify for the credit card and transferring the remaining debt onto the credit card., i.e., a transferred balance. Because the ISOs themselves cannot directly offer credit cards to consumers, the ISOs contract with a bank to use the bank’s Bank Identification Number (“BIN”) to issue credit cards in the name of the bank to consumers. In exchange for issuing the card, a bank receives a per-account monthly fee, and in some instances a program review fee, from the ISO. Once the bank and ISO enter into an agreement, the credit card products are marketed to consumers. If a consumer’s application for such a credit card product is approved, the bank will make an extension of credit to the consumer, whose account then will be held by the bank," the consent order states.

MABTC began to enter into agreements with ISOs in 2008 for these types of services. The consent order says that MABTC extended credit to the consumers where they could pay down the old debt while building credit.

The consent order states that Affirm Cards, a Mastercard, with Meta Bank in Sioux Falls, South Dakota, was one of the ISOs that MABTC had an agreement with. Between July 2009 and December 2011 the cards were issued to customers offering the chance to pay off debt and "new credit would become available."

"Mid America, through the ISO, failed to disclose that finance charges and fees would reduce the amount of new credit available to a consumer after making a payment," The consent order states.

Two other credit card names are also named in the consent order, which can be viewed at https://www.federalreserve.gov/newsevents/pressreleases/enforcement20171026a.htm.

MABTC agreed to the order and the order states that MABTC "has taken steps to improve its compliance program, including with respect to its relationships with ISOs" and has "agreed to undertake additional efforts to identify holders of Affirm Cards whose accounts have been transferred from one ISO to another ISO for the purpose of providing restitution."

The Daily Guide reached out to MABTC for comment about the consent order and the organization issued a formal statement in response to the consent order, as well as an announcement about changes happening for the organization.

"The issues addressed were five years ago and we have learned a lot from this experience.  The remediation required is not related to core banking activities and will not have a major impact on our Bank’s capital, liquidity or ongoing operations.  We have already invested considerable resources to strengthen our policies and systems.  With the announced acquisition of our bank by The Bank of Missouri, the addition of their resources and management strength will add to the improvement already implemented. The Bank of Missouri’s senior executive officers have substantial knowledge and experience to supplement the management team of Mid America Bank & Trust Company. We are excited to combine resources as this will position us for continued success and growth," MABTC said in its statement about the consent order.