OTS Slams the Door on Meta Payment Systems

The SEC published an 8-K last night, revealing the Supervisory Directive from the Office of Thrift Supervision that forces MetaBank’s MetaPayment Systems division from offering refund anticipation loans, refund anticipation checks, and the i-advance line of credit.

I asked a spokesperson at MPS if MetaBank had a response for the Directive.

“We’re still in the business of prepaid cards,” he said, “but with regard to the payday product, it comes down to that the OTS, which is our bank regulator, says that we have to suspend it.”

There are three elements to the directive. The OTS says that MetaBank has to obtain written approval from a regional director of the OTS before it can:

• enter into any relationship with a third party to offer a new credit product
• originate directly or through any party any refund anticipation loans or any credit product collateralized by the expectation of a tax refund
• offer an income tax refund transfer service, either directly or through a third party

That means no RALs and no RACs. MetaBank was poised to provide refund loans through a partnership with Santa Barbara Tax Products Group. The deal was announced on August 10th, just days after the IRS said that they would not offer a debt indicator for tax season 2011.

It is a strong reprimand. The OTS says that MetaBank “engaged in unfair or deceptive acts or practices in violation of Section 5 of the Federal Trade Commission Act and the OTS Advertising Regulation in connection with the Bank’s operation of the iAdvance program.”

Per that ruling, MPS also has to suspend the i-advance line of credit.

The i-advance product could be added to debit cards that had been set up with a regular direct deposit. This is the “payday-type product” that the MPS person referred to.

Advocates have been clamoring to regulators to stop the i-advance product. A group met with the OTS and the Office of the Comptroller of the Currency (their future regulator) in September to discuss the situation. For them (us), it is a great victory because it pushed back a product that would have made high cost debt easily available to many families. Most problematic was MetaBank’s plans to partner with Santa Barbara Tax Products Group to offer refund anticipation loans. RAL deposits could have been used as the initial deposit on scores of new debit cards with the i-advance product.

MetaBank’s 8-K tells investors that it isn’t sure if this will impact outstanding i-advances.

Shares of MetaBank are crashing this morning. In the first 20 minutes of trading, CASH gave up $13 per share. It is currently off 40 percent since 10 am, and down from a high of $37.88 just a month ago.

This is also big news for the impending initial public offering of stock by NetSpend (NTSP). The i-advance product was distributed through NetSpend cards.