iAdvance, The popular short term loan product provided by Meta Financial Group (NASDAQ:CASH) and their Meta Payment Systems (or MetaBank) subsidiary has been halted by the Office of Thrift Supervision (OTS) due to alleged unfair or deceptive acts or practices in violation of Section 5 of the Federal Trade Commission Act and the OTS Advertising Regulation. The halt was announced in an 8-k filed by Meta Financial on October 12, 2010.
The iAdvance product was a popular feature for many prepaid debit card programs, including some operated by AccountNow, Inc. as well as NetSpend Corp. The feature allowed certain prepaid cardholders to tap into a short term line of credit (the “iAdvance” from Meta Financial). The iAdvance product was also a component of many tax refund loans provided by MetaBank partners.
According to the 8-K filed by Meta Financial, Meta must obtain the prior written approval of the OTS Regional Director to:
- enter into any new third party relationship agreements concerning any credit product, deposit product (including prepaid access), or automatic teller machine or materially amend any such existing agreements (except for amendments to achieve compliance with applicable laws and regulations) or publicly announce any new third party relationship agreements or material amendments to existing agreements;
- originate, directly or through any third party, income tax refund anticipation loans or other loans where the expected source of repayment is a tax refund; and
- offer an income tax refund transfer processing service directly or through any third party during the 2011 tax season.
Meta Financial cautioned investors that the potential discontinuance of the iAdvance program could “eliminate a substantial portion of MPS’ gross profit”. The stock has traded off sharply after the announcement.
It is unclear how substantial a portion of MPS profit will be impacted by the halt. In the 3 months ended June 30, 2010, the Meta Payment Systems subsidiary reported total interest income of $2,837,000 and non-interest income of $18,215,000 (likely from prepaid card transaction fees and prepaid program-related income). Whether the $2,837,000 is from iAdvance-related income or other consumer or commercial loan income is unclear.
The halt of the iAdvance product has caused the Wall Street Journal to speculate that the NetSpend IPO (scheduled for release this week) will be impacted, as MetaBank is the issuing bank of many NetSpend prepaid cards.
The 8-K is silent as to the nature of the alleged unfair or deceptive acts or practices that triggered the action.