Gambling with FDIC-Insured Deposits

The NetSpend card never fails to amaze me, and today is no different.  Today, I discovered that NetSpend was once the destination for the deposits utilized by gamblers at online sites like Full Tilt Poker.

This changed when the Internet Gambling Enforcement Act made it illegal for banks to transfer money to an online gambling site in 2007.  Since then, a number of alternative modes have been proposed.  The EcoCard, for example, is a deposit card regulated by the Financial Services Authority.  The FSA oversees banking in the United Kingdom.

Full Tilt Poker is an online gambling site.  It may be located in the United States.  It could also be located in Jamaica, or Liberia, or Bermuda.  Antigua has clashed with the US over international online gambling.  I see that Full Tilt may be an Irish company with a Canadian licensure.

Net Spend offered a $5 promotion for each new account. Maximum deposit per day was $600, although the account holder could have petitioned to have those limits increased.

This matters if only because it serves to tell more about the nature of NetSpend and its banking partner, MetaBank. These firms were using FDIC-insured accounts for some very risky purposes.  The two groups still partner together on cards with lines of credit.  NetSpend Preferred is the NetSpend card with a line of credit attached to its deposit account. Those credit lines were in place for the gambling market. That means that gamblers could have borrowed money from MetaBank in order to meet their gambling obligations.

It also tells us something about our regulators.  The Office of Thrift Supervision, the regulator for MetaBank, did not stop this from happening. The FDIC didn’t step in, either.  It took an act of Congress!

NetSpend is a marketing firm that finds customers for MetaBank.  NetSpend’s marketing relationships still include all kinds of unusual actors, from payday lenders to pawn shops and more.

There is an InterAgency Ruling on how regulatory bodies should govern high cost credit.  It was aimed at payday lending and automobile title lending.  The emerging prepaid debit/credit platform should be the next spot for its application.

Safe and Sound!