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Crackdown on MetaBank Casts a Shadow on NetSpend’s IPO

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

Austin, Texas-based NetSpend is planned to amount its long-planned IPO on Thursday, relating to reports in the economic wires. But its ties that are close MetaBank caused rounds of conjecture about whether or not the IPO will in truth take place. A NetSpend representative says 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 brand new loans under its iAdvance item at the time of Wednesday, and in addition it put settings on its company of issuing loans prior to clients’ receipt of income income income tax refunds, alleged tax-refund expectation loans.

“The OTS suggested us on Oct. 6 so it has determined that the lender involved with unfair or misleading functions or methods in violation of the Federal Trade Commission Act and OTS marketing laws regarding the the bank’s operation associated with the 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 will not provide information about exactly just what the OTS available at fault with iAdvance, which will be a short-term loan item that MetaBank calls a “microloan” although 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 sheer number of such loans and their total receivables were maybe maybe not straight away available. An OTS representative declined to comment, and a Meta representative referred a Digital Transactions News call to an administrator whom failed to respond by belated Wednesday.

The filing additionally claims that due to Meta’s third-party relationship danger, other dangers, and its particular quick growth—growth the filing related to the expansion to its Meta Payment Systems processing division—the OTS ended up being needing it to obtain approval from the local manager before it may participate in different company tasks. The organization requires an OTS ok before it may come into brand brand new third-party relationships, originate tax-refund that is new, and even provide income-tax transfers during the 2011 taxation period.

The point is, Meta Financial stated the discontinuance of iAdvance together with possible discontinuance of tax-related programs now at the mercy of OTS approval would “eliminate an amazing portion” of Meta Payment Systems’ gross revenue. Meta’s stocks shut down 33percent on Wednesday.

The problem that is possible NetSpend is the fact that it really is so closely connected with MetaBank. NetSpend manages 2 million active prepaid cards, and MetaBank dilemmas 71% of those, according 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 the program manager took “in order to help expand align our interests that are strategic MetaBank,” NetSpend’s filing states.

Prepaid credit card researcher Tim Sloane of Mercator Advisory Group Inc. claims he doubts iAdvance alone ended up being a product section of Meta’s company, but he notes that only Meta and also the OTS have actually the details that are full. “It could 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 claims.

Investment bank Morgan Stanley issued a written report Wednesday saying Meta’s woes add up to an endorsement of this strategy of NetSpend Green that is rival Dot, which can be when you look at the processing of shopping for a bank. “Better to stay control over your destiny that is own, Morgan Stanley stated.

NetSpend intends to offer 2.27 million shares at ten dollars to $12 apiece, which will create $22.7 million to $27.2 million before underwriting expenses. NetSpend’s present owners prepare to market 16.3 million stocks.