The rules that govern how money changes hands during most debit card transactions is about to change, but it is anybody’s guess where things will stand once the marketplace finds its new equilibrium.

The Durbin Amendment to the Dodd-Frank legislation puts a price ceiling on how much retailers will pay on transactions where the card issuer has more than $10 billion in assets. Most financial institutions do not have $10 billion in assets, but the ones that do are the dominant in the debit card marketplace. Some accounts estimate their market share to be as high as 75 percent.

The pricing is driven by a principle that the ultimate cost of a debit card transaction should be at or below the cost of a paper check. There (more…)

The OTS directive to MetaBank sent the Iowa thrift’s shares tumbling and then set off a series of subsequent events, from the suspension of an IPO to problems in the tax plans for several national tax companies, but all of it could come undone relatively quickly.

Here is the background: The OTS Directive broke existing plans at Santa Barbara Tax Products Group, at NetSpend, and at Jackson Hewitt. SBTPG had an agreement (from August 10th) that it would work with RALs and RACs from MetaBank.  SBTPG intends to facilitate RALs in the upcoming tax year. NetSpend made MetaBank its preferred bank partner. Jackson Hewitt needs more RAL money, and it needs it to be wrapped up in five weeks.

This announcement poses a significant regulatory problem for MetaBank. It comes at absolutely the wrong time for (more…)

NetSpend and MetaBank have ignored critics of their products. Now they are paying the price.

There is a lesson in corporate strategy to draw from this situation. It doesn’t make sense to put so much effort into a financial product, given the degree of regulation associated with the banking sector, and then ignore the reaction of consumer groups and flout your regulator.

The risk is evident. MetaBank has seen its shares lose $39 million in value in the last 24 hours. NetSpend was ready to do an IPO that was expected to bring $200 million to the firm. We don’t know how things will go tonight, but it seems to safe to assume that they are going to come back with tens of millions of dollars less in equity.

There are other companies in the prepaid space that do things better. Green Dot made an aggressive outreach to (more…)

Today’s news that the OTS is going to prevent MetaBank (CASH) from offering refund anticipation loans puts a hurt on its profitability, it might present a bigger crisis for one of its partner companies.

No RALs from MetaBank  threatens the viability of the entire business model at Jackson Hewitt.

The SEC published news of the OTS’s Supervisory Directive overnight.

Many of Jackson Hewitt’s customers apply for a “financial product.”  Financial product fees constituted 22 percent of revenue in 2010.  About 9 in 10 JTX customers used either a RAL or a RAC in 2010. The share was (more…)

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 (more…)