MetaBank is wasting no time in attempting to collect on the outstanding balances on their now closed i-advance lines of credit.
How MetaBank would collect on the i-advances that were extended to existing customers has been a question ever since the OTS' action against the thrift from Storm Lake. The Office of Thrift Supervision's October 12th Supervisory Directive forced MetaBank to close existing i-advance accounts. On its website, MetaBank acknowledged that it was not sure how well they would be able to pull back their loans.
MetaBank published an 8-K later that day which warned investors about the situation.
We cannot predict with assurance whether and to what extent the OTS will address the compliance and supervisory matters in addition to those described above. However, the OTS has informed us that it will address in the future its expectations with respect to reimbursement of borrowers under the iAdvance program. It is anticipated that the
discontinuance of the iAdvance program and the potential discontinuance of the tax-related programs (which are subject to OTS approval) will eliminate a substantial portion of MPS' gross profit. In addition, the discontinuance of the iAdvance program may result in elevated rates of nonpayment on outstanding iAdvance loans.
There is some important information here with respect to the ability of MetaBank to collect. For one, the statement hints that the OTS may itself decide to determine how and to what extent MetaBank can collect. Most importantly, it puts the cards on the table that the iAdvance balances are in jeopardy.
MetaBank's cards used the expectation of a direct deposit to collateralize short-term advances. For each $20 increment, MetaBank charged a fee of $2.50. The consumer had until their next direct deposit (up to a maximum of 35 days) to pay it back. Otherwise, the money was deducted from the next direct deposit. Unstated but implicit to the arrangement was that a borrower could take out a new advance immediately if they could not extinguish all of the debt.
Re-upping is often referred to as a "roll-over." MetaBank has told me that their customers cannot roll-over, but their assertion is based on a technicality. The direct deposit does satisfy the existing debt, but that claim ignores the instance of a new loan.
Now, the option of rolling over is gone. MetaBank can't offer a new i-advance. If their non-rollover claim was true, there wouldn't be a problem. Unfortunately for consumers and for MetaBank's balance sheet, these customers were rolling over.
MetaBank's response appears to be that they will take all of the outstanding debt at the next direct deposit.
A consumer advocate in Washington says that she has encountered a retired woman from Pennsylvania who claims that MetaBank plans to take at least a portion of the next direct deposit of her Social Security payment. According to the borrower, she took out an iAdvance for $300 in August. Since then, she has been covering that debt with a new advance. She now owes $320. MetaBank says that they will take it all at the end of this month.
There are a number of situations where this policy runs afoul of the law. For one, unless you are the Treasury Department or if you are trying to collect on child support, it is against the law to put a garnishment a Social Security check. There's also the possibility that a judge would classify an i-advance from a prepaid card within the definition of a credit card. If that was the case, then a claim could be made that it is a violation of the Truth-in-Lending Act to put an offset on a credit card.
From my perspective, MetaBank deserves to collect on the principal that it's iAdvance consumers have drawn from the company. The question is really about how they do it. Taking all of the money right away is certainly one way to jump start that process. At a time when regulators are watching so closely, it seems like a decision that puts money in conflict with prudence. An alternative plan would be to set up a payment plan. Illegal garnishment is just more blood in the water.