Crackdown on MetaBank Casts a Shadow on NetSpend’s IPO

Federal banking regulators this thirty days cracked straight down on MetaBank, an important card that is prepaid, an action that threw 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 expense its long-planned IPO on Thursday, in accordance with reports in the monetary cables. But its ties that are close MetaBank caused rounds of conjecture about perhaps 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 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 placed 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 deceptive functions or methods in breach of the Federal Trade Commission Act and OTS marketing regulations regarding the the bank’s operation of this iAdvance system and needed the bank to discontinue all iAdvance line-of-credit origination task by Oct. 13, 2010,” Meta Financial’s filing states.

The filing will not offer facts about just exactly what the OTS available at fault with iAdvance, which will be a short-term loan item that MetaBank calls a “microloan” while some news reports call it a pay day loan. MetaBank provides the solution to NetSpend along with other consumers for who it issues prepaid cards. How many such loans and their total receivables were maybe maybe not instantly available. An OTS representative refused to comment, and a Meta representative referred a Digital Transactions News 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 fast growth—growth the filing caused by the expansion to its Meta Payment Systems processing division—the OTS ended up being needing it to have approval from the local manager before it may take part in different company tasks. The business requires an OTS fine before it may get into brand brand brand new third-party installment loans no credit check relationships, originate brand new tax-refund loans, and on occasion even provide income-tax transfers through the 2011 taxation period.

The point is, Meta Financial stated the discontinuance of iAdvance and also the possible discontinuance of tax-related programs now subject to OTS approval would “eliminate an amazing portion” of Meta Payment Systems’ gross revenue. Meta’s stocks shut down 33% on Wednesday.

The possible issue for 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 up to a filing the business made towards the SEC a week ago in advance regarding 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 credit card researcher Tim Sloane of Mercator Advisory Group Inc. states he doubts iAdvance alone had been a product section of Meta’s company, but he notes that just Meta and also the OTS have actually the full details. “It may be the OTS is wrestling with just how to manage prepaid in sponsoring banks, plus in figuring that out, 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., that is into the processing of purchasing a bank. “Better to stay control of your destiny that is own, 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.