Inter National Bank, NetSpend and MetaBank are engaged in a three-way tussle that would seem to provoke significant questions about the safety and soundness of deposits held in prepaid accounts.
In Inter National Bank v. NetSpend Corporation, MetaBank, BDO USA, LLP d/b/a BDO Seidman, the McAllen, Texas
bank says that NetSpend incorrectly overstated the sum of deposits held in accounts on cards issued by Inter National Bank. INB says that NetSpend violated its fiduciary duty. In turn, INB is asserting that MetaBank should also be held liable, as the contested $10.5 million appears to have ended up with MetaBank.
The shortfall is in an account held in INB's name. That is within expectation, as it is common that prepaid deposits are held in a single common account with designated sub-accounts in the names of the individual account holders.
MetaBank's explanation of the suit is expressed below:
According to the Petition, NetSpend has informed Inter National Bank (“INB”) that the depository accounts at INB for the NetSpend program supposedly contained $10.5 million less than they should. INB alleges that NetSpend has breached its fiduciary duty by making affirmative misrepresentations to INB about the safety and stability of the program, and by failing to timely disclose the nature and extent of any alleged shortfall in settlement of funds related to cardholder activity and the nature and extent of NetSpend’s systemic deficiencies in its accounting and settlement processing procedures.
MetaBank says that it intends to defend its position "vigorously."
But NetSpend has its own version of the events. NetSpend says that it told INB to prepare to transfer deposits on its cards over to MetaBank - but MetaBank did not comply. In a recent filing, TSYS (NetSpend's corporate parent) said that "one of NetSpend's Issuing Banks was holding approximately $10.0 million that should be been allocated to the other Issuing Bank."
One question raised by this incident is the extent to which it may have impacted the claims that cardholders have on their accounts. If a consumer of an INB-issued NetSpend card asked to close his or her account and in turn receive any current deposit, would INB comply? Would MetaBank step in if INB balked? It turns out that the answer is "no" in both cases. NetSpend agreed to make up the deficiency while the matter remained in dispute, all the while asserting that doing so did not represent an admission of guilt.
It is important to note that this remains only a hypothethical question - consumer dollars are not at risk in this dispute. Nonetheless, part of the problem is simple book-keeping. If INB is correct, then at least part of the guilt is the product of how BDO Seidman recorded the book-keeping entries that it received from the processor.