Crackdown on MetaBank Casts a Shadow on NetSpend’s IPO

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

Austin, Texas-based NetSpend is planned to cost its long-planned IPO on Thursday, relating to reports in the economic wires. But its close ties to MetaBank caused rounds of conjecture about whether or not 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 to your Securities and Exchange Commission that any office 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, plus it put settings on its company of issuing loans prior to clients’ receipt of income tax refunds, alleged tax-refund expectation loans.

“The OTS suggested us on Oct. 6 so it has determined that the lender involved in unfair or acts that are deceptive methods in violation of the Federal Trade Commission Act and OTS marketing laws relating to the bank’s operation for the iAdvance system and required the lender to discontinue all iAdvance line-of-credit origination task by Oct. 13, 2010,” Meta Financial’s filing states.

The filing doesn’t provide facts about just what the OTS available at fault with iAdvance, which will be a short-term loan product which MetaBank calls a “microloan” while some news reports call it a pay day loan. MetaBank provides the service to NetSpend along with other consumers for who it issues prepaid cards. The amount of such loans and their receivables that are total maybe maybe perhaps not instantly 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 states that due to Meta’s third-party relationship danger, other dangers, as well as its growth—growth that is rapid the related to the expansion to its Meta Payment Systems processing division—the OTS had been needing it to have approval from the local manager before it might participate in different business tasks. The business requires an OTS fine before it may get into brand brand new third-party relationships, originate brand new tax-refund loans, and on occasion even provide income-tax transfers throughout the 2011 income tax period.

The point is, Meta Financial stated the discontinuance of iAdvance as well as the prospective discontinuance of tax-related programs now susceptible to 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 the fact that it really is so closely connected with MetaBank. NetSpend manages 2 million active prepaid cards, and MetaBank problems 71% of these, according to a filing the business made to your SEC the other day in advance associated with IPO. NetSpend holds 4.9percent of Meta Financial’s equity, an action the program manager took “in purchase to help carolina no credit payday loans expand align our interests that are strategic MetaBank,” NetSpend’s filing claims.

Prepaid credit card researcher Tim Sloane of Mercator Advisory Group Inc. claims he doubts iAdvance alone had been a product part of Meta’s company, but he notes that just Meta as well as the OTS have 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 put these limitations set up,” he claims.

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

NetSpend intends to offer 2.27 million stocks at ten dollars to $12 apiece, which may produce $22.7 million to $27.2 million before underwriting costs. NetSpend’s present owners prepare to market 16.3 million stocks.