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Think Finance wanted to give underbanked consumers access to credit when they needed it, while helping them avoid a bad cycle of debt. To accomplish this, the online payday lender developed the Elastic card, a prepaid debit card with a line of credit of up to $500, that rewards consumers with lower fees for exhibiting good behavior, like making payments on time.
December 3 -
NetSpend Holdings Inc. said it is seeking additional partners in light of the regulatory problems facing its biggest prepaid card issuer, MetaBank.
October 18 -
Competing prepaid issuers may target and attract MetaBank's partners as the company deals with new regulatory restrictions imposed by the Office of Thrift Supervision.
October 14
Meta Financial Group Inc.'s escalating regulatory problems could foreshadow broader scrutiny of prepaid card companies.
Experts following Meta's troubles with the Office of Thrift Supervision — which last week notified Meta that it will require the company to reimburse customers who used its iAdvance credit product — say regulators are taking a closer look at how sponsor banks like Meta work with the businesses that run prepaid programs.
"We have been hearing in general from the banking regulators and from other financial institutions that the regulators are looking closer at program manager relationships," said Terry Maher, general counsel for the Network Branded Prepaid Card Association and a partner with the Baird Holm LLP law firm in Omaha, Neb.
Meta's problems surfaced in October when it announced that its regulator, the OTS, had ordered it to shut down a small-dollar, high-interest loan program. The OTS also limited Meta's ability to enter new business relationships, or significantly alter existing ones with prepaid program managers such as NetSpend Holdings Inc. and AccountNow Inc. without the agency's prior approval.
Last week, the OTS also notified Meta that it is preparing a cease-and-desist order to present to the company, Meta said in a Securities and Exchange Commission filing on Tuesday. The regulator is also determining whether to assess civil monetary penalties against Meta's MetaBank subsidiary, one of the biggest issuers of prepaid debit cards.
Tyler Haahr, the Storm Lake, Iowa, company's president and chief executive, said Wednesday that the potential reimbursement amount has not been determined.
"We are in discussions with them," Haahr said. "We've made substantial progress. This is just … a continuation in the process of getting matters addressed that the OTS wants to be addressed and … getting the matter put behind us."
A spokesman for the OTS declined to comment.
In addition to determining that MetaBank "engaged in unfair or deceptive acts or practices" related to iAdvance, the agency also issued supervisory directives related to the bank's "third-party relationship risk, enterprise risk management and rapid growth," Meta's filing said.
That suggests the OTS is taking a broader look at how Meta interacts with the companies that market prepaid cards using its issuing services, analysts said.
"Issuers and program managers should read this cease-and-desist order when it comes out pretty carefully," said Ben Jackson, a senior analyst in the prepaid advisory service at Mercator Advisory Group in Maynard, Mass.
The OTS and other regulators could be looking "to prevent program managers from renting" a sponsor bank's charter and "doing whatever they want with it," Jackson said.
Haahr declined to say what specific risk issues the OTS was looking at, citing rules against discussing ongoing regulatory reviews.
Phil Philliou, a partner with the consulting firm Philliou Selwanes Partners LLC, said sponsor banks generally are responsible for ensuring third-party partners comply with applicable regulations and card network rules. "Sponsors now have this even greater level of responsibility in how they manage their programs," Philliou said.
Depending on the OTS' final action and what other regulators do, smaller prepaid card program managers may be driven out of the market if issuing banks become more risk-averse, Philliou said.
It may also result in new opportunities for larger banks to get into the prepaid card market. "I think the potential winners may be large banks and prepaid card processors who will look to take on greater regulatory and compliance responsibilities," Philliou said.
Meta's issues have created uncertainty for its prepaid card partners. NetSpend, which offered the iAdvance product before the OTS shut it down, briefly delayed its initial public offering after Meta announced problems with the OTS in October. The company has been working on adding more issuing banks to shift some of its volume away from Meta, which accounted for about 72% of NetSpend's active prepaid cards at Sept. 30.
AccountNow, which offered iAdvance to its prepaid cardholders, also halted plans to offer a similar credit product when the lender, First Bank of Delaware, decided to pull it, Jim Jones, the San Ramon, Calif., company's CEO, said Wednesday. It has three issuing partners, including Meta, Jones said. "The majority of our business remains with Meta and we continue to issue cards with Meta," Jones said.
Haahr said Meta's issues with the OTS have not had a "material effect" on its issuing relationships.
