The Federal Trade Commission has filed a complaint in federal court alleging deceptive marketing practices by TSYS subsidiary NetSpend Corp.
The complaint, filed Nov. 10 in U.S. District Court for the Northern District of Georgia, claims that NetSpend, a prepaid card marketing and distribution business, “deceived” consumers concerning their ability to access money on debit cards.
At its core, the FTC complaint alleges that NetSpend told customers that they could access money from their reloadable cards immediately after putting funds into their accounts. However, the FTC says, once money was loaded on the cards, many consumers could not gain access to their cash or NetSpend denied or delayed activation of the card, or simply blocked them from being used.
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The complaint specifically notes NetSpend marketing information, including its website, which it said tells those loading the cards that they can “use it today” and have “immediate access” to their money and that funds are “always available.” It said NetSpend’s “guaranteed approval” claim to potential customers is at odds with federal regulations requiring an identity check that may or not be approved.
Such delays tie up money loaded onto the cards, the FTC said, causing financial problems that can lead to “financial hardship such as evictions, car repossession and late fees on bills.”
The federal agency said it wants any money owed to affected customers returned to them and for NetSpend to give them prompt access to funds on the cards in the future. NetSpend customers typically are those people who either don’t want a traditional bank account or can’t qualify for one.
“Innovative financial products can offer many benefits to consumers. However, when companies promise consumers ‘immediate access’ to their funds, they need to honor those promises,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement. “We’re committed to protecting consumers — particularly those who are financially strapped — from deceptive practices involving their payment choices.”
Headquartered in Columbus, TSYS purchased Austin, Texas-based NetSpend for $1.4 billion in 2013. The prepaid specialty outfit is now a subsidiary that contributes to TSYS revenues, which are generated through credit-card transactions and payment processing in markets around the globe. TSYS, which employs about 11,500, posted net income of $364 million on total revenues of $2.8 billion last year.
TSYS spokesman Cyle Mims on Monday declined to comment on the legal matter, deferring to a response by NetSpend itself following the Nov. 10 filing of the complaint by the FTC. NetSpend said it “intends to vigorously contest this complaint and has substantial defenses to do so.”
“At issue in the complaint is whether consumers were deceived because of NetSpend’s compliance with federally mandated obligations under the USA PATRIOT Act to confirm the identity of those acquiring NetSpend prepaid cards,” the TSYS subsidiary said. “NetSpend takes seriously and carefully adheres to these legal mandates to fight identity theft, money laundering and terrorist financing and believes that no one was deceived or harmed by the company’s compliance with these legal obligations. The complaint also relates to NetSpend’s fraud controls, which are required by federal law, including the FTC’s own Red Flags Rule, to monitor accounts for account takeover and possible fraud in order to protect consumer funds. These processes are not deceptive, but instead comply with the law and protect consumers.”
NetSpend says its reloadable cards and accounts have helped more than 10 million consumers since 1999. Its cards are distributed at more than 85,000 locations, including employers, various stores, pharmacies, insurance companies and tax preparation businesses, it says.