On October 6, 2010, the Office of Thrift Supervision (OTS)issued a Supervisory Directive to MetaBank that requires MetaBankto obtain written approval from the OTS before entering into newbusiness.Meta says the OTS determined the bank had”engaged inunfair or deceptive acts or practices” in its iAdvance short-termloan program and ordered the bank to stop making iAdvance loans byOctober 13, 2010.
The scope of the OTS order against Meta should put theindustry on notice that the regulators – even the one that isscheduled to be merged into another agency within the next year orso – are watching.
The timing of the order was interesting because it came onthe eve of NetSpend Holdings Inc.’s initial public offering ofstock. NetSpend says that MetaBank issued about 71 percent of itsactive cards. Despite the timing of the order and rumors, NetSpendcompany sold its stock on October 18 for $11 a share, which was inthe middle of its planned range of $10 to $12. This shows thetroubles didn’t scare investors away.
The OTS order has created an opportunity for banks thatare interested in getting into the prepaid business. NetSpend hasalready said that it would seek to diversify its group of issuers,and other program managers are likely to do the same.