Crackdown on Meta Bank Casts a Shadow on NetSpend’s IPO

Crackdown on Meta Bank Casts a Shadow on NetSpend’s IPO

Federal banking regulators this thirty days cracked straight straight straight straight down on MetaBank, an important prepaid credit card issuer, an action that tossed into concern the pending initial general general general general public providing of prepaid credit card system manager NetSpend Corp.

Austin, Texas-based NetSpend is planned to expense its long-planned IPO on Thursday, in accordance with reports regarding the monetary cables. But its ties that are close MetaBank caused rounds of conjecture about perhaps the IPO will in truth take place. A NetSpend representative states he can’t comment.

On Tuesday, MetaBank’s moms and dad business, Storm Lake, Iowa-based Meta Financial Group Inc., reported towards the Securities and Exchange Commission that any office of Thrift Supervision had taken enforcement actions against MetaBank. The OTS banned MetaBank from issuing any new loans under its iAdvance item at the time of Wednesday, plus it put settings on its company of issuing loans prior to customers’ receipt of income tax refunds, alleged anticipation that is tax-refund.

“The OTS encouraged us on Oct. 6 so it has determined that the lender involved with unfair or acts that are deceptive techniques in breach of the Federal Trade Commission Act and OTS marketing laws regarding the the bank’s operation of this iAdvance system and needed the lender to discontinue all iAdvance line-of-credit origination activity by Oct. 13, 2010,” Meta Financial’s filing states.

The filing doesn’t offer information about exactly exactly exactly exactly what the OTS available at fault with iAdvance, which will be a short-term loan item that MetaBank calls a “microloan” while some news reports call it a cash advance. MetaBank supplies the solution to NetSpend along with other customers for who it issues cards that are prepaid. The amount of such loans and their total receivables were maybe perhaps maybe maybe not straight away available. Wednesday an OTS spokesperson refused to comment, and a Meta spokesperson referred a Digital Transactions News call to an executive who did not respond by late.

The filing additionally claims that due to Meta’s third-party relationship danger, other dangers, as well as its quick growth—growth the filing caused by the expansion to its Meta Payment Systems processing division—the OTS ended up being needing it to obtain approval from the regional manager before it might take part in different company tasks. The business requires an OTS ok before it could come into brand new third-party relationships, originate brand new tax-refund loans, and even provide income-tax transfers through the 2011 taxation period.

The point is, Meta Financial stated the discontinuance of iAdvance in addition to prospective discontinuance of tax-related programs now at the mercy of OTS approval would “eliminate a considerable portion” of Meta Payment Systems’ gross revenue. Meta’s stocks shut down 33percent on Wednesday.

The problem that is possible NetSpend is it really is so closely connected with MetaBank. NetSpend manages 2 million active prepaid cards, and MetaBank dilemmas 71% of these, relating up to a filing the business made to your SEC the other day in advance regarding the IPO. NetSpend holds 4.9percent of Meta Financial’s equity, an action this program manager took “in purchase to help expand align our strategic passions with MetaBank,” NetSpend’s filing claims.

Prepaid credit card researcher Tim Sloane of Mercator Advisory Group Inc. states he doubts iAdvance alone ended up being a product section of Meta’s company, but he notes that just Meta plus the OTS have actually the details that are full. “It may be the OTS is wrestling with how exactly to handle prepaid in sponsoring banks, as well as in figuring that away, they’ve placed these limitations set up,” he states.

Investment bank Morgan Stanley issued a study Wednesday saying Meta’s woes add up to best payday loans in West Virginia an recommendation for the strategy of NetSpend competing Green Dot Corp., that will be within the processing of shopping for a bank. “Better to stay control over your very own destiny,” Morgan Stanley stated.