OCTOBER 13, 2010, 5:34 P.M. ET 2nd UPDATE: NetSpend IPO View Darkens On MetaBank Regulatory Woes


OCTOBER 13, 2010, 5:34 P.M. ET Wall Street Journal digital network

2nd UPDATE: NetSpend IPO View Darkens On MetaBank Regulatory Woes

By Lynn Cowan Of DOW JONES NEWSWIRES

The previously rosy outlook for this week’s IPO of prepaid debit card company NetSpend Holdings Inc. hit a hitch Wednesday on news that its preferred issuing bank must stop offering an add-on service due to regulatory violations.

NetSpend, which is scheduled to price its initial public offering Thursday and trade Friday on the Nasdaq under the symbol NTSP, was considered a strong deal by analysts and bankers.

On Wednesday, the company’s preferred debit card issuer, MetaBank, a unit of Meta Financial Group Inc. (CASH), was forced to discontinue originations in its iAdvance line of credit program, under a directive issued by the Office of Thrift Supervision.

NetSpend markets the iAdvance line of credit to users of its prepaid debit cards; NetSpend also issues about 71% of its active cards through MetaBank and owns about 5% of MetaBank’s outstanding stock.

NetSpend would not immediately comment on its relationship with MetaBank. It has scheduled a conference call for IPO investors Thursday morning, according to Scott Sweet, managing director of research firm IPOBoutique.com.

Meta Financial Chief Executive Tyler Haahr told Dow Jones that his bank will continue to issue debit cards for NetSpend, and that aspect of their business is unaffected by the iAdvance halt.

“We expect to continue to service existing customers, including NetSpend, consistent with the terms of our agreements,” Haahr said.

The iAdvance line of credit was a feature offered on MetaBank-issued prepaid debit cards at an additional charge to card holders. The line of credit operated like an overdraft agreement on a checking account, allowing consumers to make purchases beyond their prepaid limit, which they later paid back, in addition to paying a fee for the service.

A source with knowledge of NetSpend’s business said that the company’s revenue related to iAdvance was immaterial, but a NetSpend spokesman would not comment.

Along with suspending the iAdvance program at MetaBank, regulators found that MetaBank had engaged in deceptive acts or practices in connection with its iAdvance program.

In the absence of information from NetSpend, IPO analysts Wednesday reacted by cutting their ratings on the deal, which previously had high marks.

“Right now, I can’t tell people to buy this. It’s too risky,” said Ben Holmes, president of IPO research firm Morningnotes.com. Holmes said he was lowering his rating on the firm, which he previously saw as a high-demand offering.

Sweet, of research firm IPOBoutique.com, said he was concerned about business interruption for NetSpend as well as the possibility of litigation from card holders and investors who own Meta Financial shares. He lowered his rating on the IPO to neutral, two steps below his previous rating of strong buy. [Was any one paying any attention to what this company actually was doing before they bought?]

“You can bet there will be protracted litigation, not only with Meta, but NetSpend could be named as codefendent,” due to its relationship with the bank, said Sweet, who said it was the first time he dropped a rating by two notches since he founded his company in 2005.

Meta Financial’s stock cratered Wednesday. It closed at $22.25, down 33%. The news also weighed on shares of Cash America International Inc. (CSH), a payday lender that has a 8.6% stake in Meta, according to FactSet Research. Cash America closed at $33.55, down 5.7%.

MetaBank said it expects that ending its iAdvance program, as well as the potential discontinuation of its tax-related programs, will eliminate a substantial portion of its Meta Payment Systems division’s gross profit. Ending the iAdvance program may also result in higher nonpayment on outstanding iAdvance loans. The company said it couldn’t predict the effect on its results of operations or financial condition of MetaBank or parent Meta Financial.

NetSpend warns in its prospectus that any material adverse event that affects MetaBank or causes it to lose its ability to be an issuing bank for its cards would force NetSpend “to find an alternative provider of these critical banking services.” [How will consumer’s and customer’s interests be protected? All that we have heard is about these people who have been making money by deceitful practices and by misleading people, but how can they expect to keep going on and on when they are doing that to the most vulnerable people among us?]

 

-By Lynn Cowan, Dow Jones Newswires; 301-270-0323; lynn.cowan@dowjones.com

(Jennifer Cummings contributed to this article.)

 

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5 Comments

  1. Tashina

     /  March 5, 2011

    This product is great! I’ve been a customer for a little over 2 years. Once direct deposit is added to your card the only fees you pay is a monthly maintenance fee of $4.95. I miss the iadvance loan- their rates and time limit were so much better than those pay day loans where they charge you weekly.

    Reply
    • A monthly maintenance fee of $4.95 that you must pay while they hold onto your money? That is just crazy!!!
      You must be a representative from this company or an employee of this company.
      You are offered a different card than the one that you are encouraged to push off onto to customers.
      You are given a whole pep talk and your card may work for you, but the cards you then are given to “sell”
      to your clients or customers will have a different set of numbers.
      You will be surprised that they are having so much trouble with the card since it does work so well for you
      and if you think paying $4.95 a month is a fair and reasonable amount as a monthly maintenance fee then you have already bought into a major scam.
      You should be saving money in a savings account. You are just making lots of money for them. $4.95 as a fee per month for them to hold your money is outrageous!!!

      Reply
    • Good.

      Reply
    • You pay a bank to take your money and to hold your money.
      You have your salary directly deposited to your Meta Bank account and you pay them $4.95 to do this.
      Is this what you have just told me?
      How much searching for a local bank account did you do?
      I am aware that many banks do not charge anything for direct deposits. (In fact, I was shocked to learn that Meta Bank charges where other banks give interest.)
      The customer then begins to earn interest on their own money, but pays no maintenance fee.
      I am confused as to what makes you think that you are getting a wonderful product.
      This product you have described to me will not help your credit record.
      It costs you a minimum of $60 a year for Meta Bank to do “maintenance” on the salary you have directly deposited into their bank.
      Why are you giving money to Meta Bank to hold your money and for them to get interest or free use of your hard earned money? This does not make sense.
      Why wouldn’t you want control over your own money? Meta Bank doesn’t offer that option.

      Reply
    • TASHINA,

      META BANK frequently gets companies to promote their bank cards. Consumers have discovered that the clerks who are asked to promote the gift cards, prepaid debit cards put out by META BANK are often also urged to sell more and more of their cards via a competition that their bosses urge them to get involved in after having made them a gift or bonus of some kind using a META Bank prepaid card. What the clerks don’t know is that META BANK then gives the customers, perhaps their long standing customers, extremely poor service, lies to them and fails to address any of their real concerns. Why should META BANK address the customer’s needs or concerns once they have full control of their money? This is where and how META BANK is a scam and how they will actually run off any company’s former customer base that may have existed. META BANK excels at marketing, but they aren’t about service to customers. The companies that often may choose to be taken in by META BANK most likely are courted by META BANK who is really doing a serious sales pitch. If this company is actually on the brink of failure, META BANK is not actually a real solution for their long term growth. Any company thinking that using the kinds of services that META BANK is offering should be most wary. They may experience a brief period of improved collections, since that is the other area where META BANK excels (Strong arm collection agency techniques), but this will be off putting to former customers who object to the mafia like techniques used by META BANK. Also the fact that META BANK lies and makes our own money inaccessible to us as consumers is a great disadvantage for holding on to customers. Partner companies also need to be forewarned not to do business with META BANK or any company like them. A monthly maintenance fee of $4.95 is ridiculous; this is not the American dream for consumers. Comparing META BANK’s services to PAYDAY LOAN is comparing one con artist with another; don’t do business with either place. I was really badly scammed by META BANK. This inspired me to do research into how META BANK operates. I found many horror stories about META BANK. Please do not push their services off onto your customers.

      Reply

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