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OTS Blocks New Business for MetaBank Cards

Adam Rust's picture

Posted May 18, 2011

NetSpend's annual report says that they have been told by the Office of Thrift Supervision says any new relationships between MetaBank and existing program partners will require OTS approval.

NetSpend is an existing partner/program manager for cards issued by MetaBank. This is an interesting wrinkle

to last fall's directive by the OTS. In that directive, the OTS said that MetaBank would need permission to start any new relationships.

"Based on further communications between MetaBank and OTS, we understand that the OTS Directives will require MetaBank to obtain OTS approval prior to MetaBank executing new third party agency agreements with new distributor relationships established by existing program managers such as NetSpend. This means that we will not, without MetaBank obtaining the prior written approval of OTS, be able to enter into new agreements with distributors that are also parties to a third party agency relationship with MetaBank (or amend any such existing three-party relationships), which would include any distributors that have the capability to issue cards and accept cash deposits on those cards."

That report is on page 10 of their annual report. NetSpend says that their source is MetaBank, which is consistent with the idea that OTS does not communicate with NetSpend directly.

This means more to MetaBank than it does to NetSpend. NetSpend's distributors do not take cash deposits. As long as NetSpend renews existing relationships with the same terms as the ones already existing, then it seems that the OTS would not intervene.

NetSpend has already set about to reduce its reliance on MetaBank. They established a new partnership with Delaware-based Bancorp Bank (TBBK) as part of a "bank diversification strategy" in January 2011.

NetSpend to Cease Working with Inter National Bank

NetSpend's 10-K says that it will move cards issued by Inter National Bank to another issuer by July 2011.

Inter National Bank is one of five institutions that issue cards marketed by Netspend. The others are US Bank, SunTrust Bank, Bancorp Bank, and Meta Bank.  Through these relationships, NetSpend is able to achieve not just a diversification of its banks, but a diversification among the regulators overseeing those institutions. Most of the parts of US Bank and SunTrust Bank are regulated by the Office of the Comptroller of the Currency.