Crackdown on MetaBank 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 public providing of prepaid credit card system supervisor NetSpend Corp.

Austin, Texas-based NetSpend is planned to cost its long-planned IPO on Thursday, based on reports regarding the monetary cables. But its close ties to MetaBank caused rounds of conjecture about if the 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 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 tax refunds, so-called tax-refund expectation loans.

“The OTS recommended 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 for the iAdvance system and needed the lender to discontinue all iAdvance line-of-credit origination task by Oct. 13, 2010,” Meta Financial’s filing claims.

The filing will not provide facts about exactly what the OTS bought at fault with iAdvance, which can be a short-term loan product which MetaBank calls a “microloan” although some news reports call it a pay day loan. MetaBank supplies the solution to NetSpend as well as other consumers for whom it issues cards that are prepaid. How many such loans and their total receivables were perhaps perhaps 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 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 had been needing it to have approval from the local director before it might participate in different company tasks. The organization requires an OTS fine before it may come into 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 said the discontinuance of iAdvance and the prospective discontinuance online car title loans in texas 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 those, according up to a filing the business made into the SEC week that is last 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 strategic passions with MetaBank,” NetSpend’s filing claims.

Prepaid card researcher Tim Sloane of Mercator Advisory Group Inc. states he doubts iAdvance alone had been a material section of Meta’s company, but he notes that just Meta therefore the OTS have actually the details that are full. “It could be the OTS is wrestling with simple tips to handle prepaid in sponsoring banks, plus in figuring that away, they’ve put these limitations set up,” he states.

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

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