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 public providing of prepaid credit card system supervisor NetSpend Corp.

Austin, Texas-based NetSpend is planned to amount its long-planned IPO on Thursday, in accordance with reports regarding the economic 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 into 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 product at the time of Wednesday, plus it put settings on its company of issuing loans prior to clients’ receipt of income tax refunds, alleged anticipation that is tax-refund.

The OTS recommended 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 advertising laws relating to the bank’s operation associated with iAdvance system and needed the lender to discontinue all iAdvance line-of-credit origination task .

The filing doesn’t offer information about exactly just what the OTS available at fault with iAdvance, which can be a short-term loan item that MetaBank calls a “microloan” while some news reports call it a loan that is payday. MetaBank supplies 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 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.

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The filing additionally states that due to Meta’s third-party relationship danger, other dangers, and its particular fast growth—growth the filing related to the expansion to its Meta Payment Systems processing division—the OTS had been needing it to obtain approval from the local manager before it may participate in different company tasks. The organization requires an OTS fine before it could come right into brand brand new third-party relationships, originate brand new tax-refund loans, and sometimes even provide income-tax transfers throughout the 2011 income tax season.

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

The problem that is possible NetSpend is the fact that its so closely connected with MetaBank. NetSpend manages 2 million active prepaid cards, and MetaBank problems 71% of those, according to a filing the business made towards 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 order to help 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 ended up being a product section of Meta’s company, but he notes that just Meta together with OTS have actually the complete details. “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 claims.

Investment bank Morgan Stanley issued a study Wednesday saying Meta’s woes add up to an recommendation regarding the strategy of NetSpend rival Green Dot Corp., which will be within 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 stocks at ten dollars to $12 apiece, which will create $22.7 million to $27.2 million before underwriting costs. NetSpend’s owners that are current to offer 16.3 million stocks.