The consequences of that ill-fated linkage have been severe and far reaching for MetaBank, and Hanson, Executive Vice President of the bank and President of Meta Payment Systems, cautioned it could have happened to any business in the prepaid card industry.
Following Gen. Colin Powell's keynote address on March 7, 2011, Hanson took the stage to update industry professionals on MetaBank's travails. In April 2010, it was reported that MasterCard Worldwide-branded payroll cards managed by online payroll provider Payoneer Inc. were used to fund the Jan. 19, 2010, assassination of a leader of the Palestinian militant group Hamas. Hanson told the audience that the suspected assassins used nine payroll cards to buy airline tickets and hotel rooms.
Although MetaBank had no reason to suspect the cards were being used for nefarious purposes, "everything just started the ball rolling with that event," Hanson said. Government regulators came calling, demanding that MetaBank oversee its third-party partners as assiduously as regulators oversee banks; among the demands were on-site inspections.
According to Hanson, the regulators informed MetaBank that, given all the requirements being put on MetaBank, they did not believe the card issuer's business model was sustainable. Hanson did not specify if and how the regulators' opinion related to MetaBank's future troubles.
However, by October 2010, MetaBank released news that the Office of Thrift Supervision, a federal agency charged with regulating banks, issued a directive for MetaBank to discontinue its iAdvance loan program. The program, begun in 2008, was offered to consumers through NetSpend Holdings Inc.'s prepaid cards.
According to a Securities and Exchange Commission filing, NetSpend said the OTS determined that MetaBank engaged in "unfair or deceptive acts or practices in connection with its operation of the iAdvance program." Hanson did not address this statement. Instead, he characterized the iAdvance matter as related to the pricing of the product. "It was a pricing issue, and every single other thing that happened stemmed from that in my opinion," he said.
Subsequently NetSpend, the second largest prepaid card provider behind Green Dot Corp., severed its relationship with MetaBank – a significant blow to MetaBank since approximately 71 percent of NetSpend's active cards were issued by MetaBank.
Then, in December 2010, Payment Data Systems Inc., the parent company of prepaid card processor FiCentive Inc., reported it was in the process of terminating its bank sponsor relationship with MetaBank. In March 2011, Bank Freedom, a subsidiary of Prepaid Card Holdings Inc., said it would not renew its similar contract with MetaBank, which expires in November 2011.
Hanson shared what the experience taught him. "The regulators, they expect perfection," he said. "They don't want to take any risk. They have zero tolerance for risk." Additionally, he believes regulators take a negative view of the prepaid card industry overall.
"It really kind of becomes a self-fulfilling prophecy for these regulators," he stated. "They think that prepaid cards are bad. They think they're dangerous. They think that third parties that participate in this industry … create risk to the financial institutions."
To prevent that self-fulfilling prophecy from occurring, the industry needs to ensure that "we're doing everything we can in order to prevent those kinds of situations," he said. He recommended that all prepaid card companies join the Network Branded Prepaid Card Association to stay informed of legislative and regulatory issues that may affect the industry.
"Remember, it only took one small event for us," he said. "It took nine cards … nine cards out of about 200 million cards that we've issued over the last five years."
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