TSYS company settles complaint filed by federal agency

Netspend, a prepaid card specialty company owned by Columbus-based credit-card and payment processor TSYS, has settled allegations leveled by the Federal Trade Commission that it deceived customers in its marketing campaign over several years about access to funds deposited onto their cards.

The settlement of the complaint, filed by the federal agency in November, was disclosed Friday by both parties. The complaint alleges that Austin, Texas-based Netspend did not make clear under the USA PATRIOT Act the company’s obligations to verify customers’ identities before activating their accounts. The federal rules are aimed at blocking potential money laundering and terrorist financing activities.

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Terms of the settlement, which include Netspend not admitting any wrongdoing, calls for the TSYS-owned company to help customers involved in the complaint to access their funds, which collectively amounted to about $40 million. Netspend said it already has allowed access to prepaid cardholders of about $3.6 million of that total.

The settlement is directed toward those Netspend customers who bought prepaid cards between Jan. 1, 2010, and Aug. 31, 2016, but never finished the required steps to verify their identities and activate their cards.

Netspend also agree to refund about $13 million in fees incurred by customers before Aug. 31, 2016, as well as give back fees charged to inactivated accounts after that date.

The FTC said it filed an order on the settlement Friday with the U.S. District Court for the Northern District of Georgia.

As part of the settlement announcement, Maureen Ohlhausen, acting chairwoman of the Federal Trade Commission, a Republican, issued a dissenting statement disputing the FTC’s claims against Netspend. However, FTC Commissioner Terrell McSweeny, a Democrat, issued her own statement admonishing Netspend for “deceptive representations about its cards.”

Netspend noted that the $40 million involved in the Federal Trade Commission complaint is less than one-half of 1 percent of the $117 billion in money spent on its prepaid cards from 2010 through September 2016. The company said its products have been used by more than 10 million consumers since 1999, helping them to spend, budget and pay their bills.

In its own statement issued Friday, Netspend said it is pleased to have “resolved” the matter.

“We agreed to settle in order to avoid the significant costs associated with protracted litigation and to get back to the business of serving our customers,” the company said. “We do a great deal to encourage card activation and comply with federal law, and we welcome this opportunity to assist those who have not activated their accounts. We look forward to continuing to empower a growing number of consumers and businesses with the convenience, security and freedom to better manage their finances.”

“Netspend also remains committed to meeting our federal obligations to combat identity theft, fraud, money laundering and terrorist financing,” it continued. “Protecting against identity theft is important not only to consumers but also to the financial system and the security of our country.”

This story was originally published April 1, 2017 at 2:50 PM with the headline "TSYS company settles complaint filed by federal agency."