Photo illustration by Cecilia Lopez | FFB Bank will review its use of independent sales organizations as part of a consent order with the Federal Deposit Insurance Corporation.

On Jan. 25, Fresno-based FFB Bank entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) over practices of its profitable merchant services program.

An FDIC consent order states deficiencies in FFB Bank’s Bank Secrecy Act compliance, particularly with its merchant payment business and relationships with independent sales organizations (ISOs) — third parties that deliver bank services to end users.

A consent order is an injunctive-type action from the FDIC. It lays out steps to correct alleged violations of the Bank Secrecy Act (BSA).

The FDIC issued a statement in July 2024 warning banks of the potential risks of using third parties to deliver deposit products and services to end users.

Examples include loss of control of the bank’s deposit functions, misaligned growth incentives, end user confusion related to deposit insurance and more.

“A bank’s use of third parties to perform certain activities does not diminish its responsibility to comply with all applicable laws and regulations,” according to the FDIC joint statement with the Federal Reserve board of governors and Office of the Comptroller of the Currency.

The IRS states, “The BSA requires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters. The documents filed by businesses under the BSA requirements are heavily used by law enforcement agencies, both domestic and international to identify, detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity.”

FFB Bank’s Merchant Services Program enables businesses to accept debit, credit, EBT cards and checks. It serves merchants throughout the country. It generated $7.56 million in Q4 2024 revenue, up 57% year-over-year, driven by increased processing volumes. Merchant services income accounts for a quarter of total operating revenue, according to an FFB investor deck from June 2024.

FFB Bank is expecting a loss in net income in 2025 from 2024.

Steve Miller, the CEO of FFB Bank, is optimistic that the bank is already back on the right track.

“We’ve explained to customers and shareholders that these are things that we’ve been addressing over the past six to nine months,” Steve Miller, the CEO of FFB Bank, said. “We feel very confident that we’ll get everything addressed in short order, and then (the regulators) will come back in and do another exam in the future, and then hopefully get us out from under the consent.”

As part of the order, FFB Bank must enhance its compliance program in these areas, correct regulatory violations and increase oversight of its merchant services program.

FFB Bank is required to have a written action plan and conduct a lookback review of high-risk accounts. Additionally, it must provide personnel training, hire an outside consultant to assess its compliance framework and obtain regulatory approval.

FFB Bank is also prohibited from onboarding new ISOs until it demonstrates compliance with regulatory expectations. It may also exit some of those relationships.

Miller said that in some cases, businesses are required to shut down operations, but that wasn’t the case for FFB Bank.

Miller remains confident that with a great team in place, the future is bright for FFB Bank.

“We have a really strong team of people and continue to hire experienced people who continue to take the bank forward in terms of growth,” he said. “It takes talented people to attract really good customers, and we look forward to executing our plan moving forward.”