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 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 scheduled to cost its long-planned IPO on Thursday, in accordance with reports from the monetary cables. But its ties that are close MetaBank caused rounds of conjecture about or perhaps a IPO will in truth take place. A NetSpend representative claims he can’t comment.

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

“The OTS suggested us on Oct. 6 so it has determined that the lender involved with unfair or misleading functions or methods in breach of the Federal Trade Commission Act and OTS marketing laws relating to the bank’s operation associated with iAdvance system and needed the financial institution to discontinue all iAdvance line-of-credit origination task by Oct. 13, 2010,” Meta Financial’s filing states.

The filing doesn’t provide factual statements about just just just what the OTS available at fault with iAdvance, that will be a short-term loan item that MetaBank calls a “microloan” although some news reports call it a loan that is payday. MetaBank provides the solution to NetSpend along with other consumers for who it issues cards that are prepaid. The amount of such loans and their total receivables were perhaps maybe maybe perhaps not instantly available. An OTS representative declined to comment, and a Meta representative referred a Digital Transactions Information call to an administrator whom would not react by belated Wednesday.

The filing additionally states that due to Meta’s third-party relationship danger, other dangers, and its particular growth—growth that is rapid the caused by the expansion to its Meta Payment Systems processing division—the OTS ended up being needing it to have approval from its local manager before it might take part in different company tasks. The business requires an OTS ok before it may come right into brand brand new third-party relationships, originate tax-refund that is new, and even provide income-tax transfers through the 2011 income tax period.

The point is, Meta Financial stated the discontinuance of iAdvance additionally the possible 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 feasible problem for NetSpend is the fact that it really is so closely connected with MetaBank. NetSpend manages 2 million active prepaid cards, and MetaBank problems 71% of those online payday loans Alabama, relating to a filing the business made to your SEC a week ago in advance for the IPO. NetSpend holds 4.9percent of Meta Financial’s equity, an action this program manager took “in purchase 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 part of Meta’s company, but he notes that just Meta therefore the OTS have actually the complete details. “It may be the OTS is wrestling with just how to handle prepaid in sponsoring banks, plus in figuring that away, they’ve placed these limitations set up,” he claims.

Investment bank Morgan Stanley issued a study Wednesday saying Meta’s woes add up to an recommendation associated with the strategy of NetSpend Green that is rival Dot, which will be within the processing of shopping for a bank. “Better to stay control over your very own destiny,” Morgan Stanley stated.