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 tossed 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, relating to reports regarding the monetary cables. But its close ties to MetaBank caused rounds of conjecture about perhaps the IPO will in truth happen. A NetSpend spokesperson 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 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 income income income tax refunds, alleged tax-refund anticipation loans.

“The OTS encouraged 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 associated with the bank’s operation of this iAdvance system and required the financial institution to discontinue all iAdvance line-of-credit origination task by Oct. 13, 2010,” Meta Financial’s filing states.

The filing will not provide factual statements 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 loan that is payday. MetaBank provides the solution to NetSpend along with other consumers for who it issues prepaid cards. The amount of such loans and their total receivables were maybe maybe 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, as well as its growth—growth that is rapid the related to the expansion to its Meta Payment Systems processing division—the OTS ended up being needing it getting approval from the local manager before it might practice different business tasks. The business requires an OTS fine before it could get into brand brand brand new third-party relationships, originate tax-refund that is new, and on occasion even provide income-tax transfers through the 2011 taxation season.

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 profit. Meta’s stocks shut down 33percent on Wednesday.

The problem that is possible NetSpend is the fact that it’s so closely connected with MetaBank. NetSpend manages 2 million active prepaid cards, and MetaBank dilemmas 71% of them, relating to a filing the business made to your SEC week that is last advance associated with 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. states he doubts iAdvance alone had been a material section of Meta’s company, but he notes that just Meta therefore the OTS have the full details. “It may be the OTS ace elite installment loans is wrestling with simple tips to handle prepaid in sponsoring banks, plus in figuring that away, they’ve placed these restrictions set up,” he states.

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 own destiny,” Morgan Stanley stated.

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