August 18, 2019

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NetSpend Settles FTC Claim Regarding Prepaid Debit Cards

NetSpend Corporation has reached a settlement with the U.S. FTC about the FTC’s claims that NetSpend’s advertisements deceived consumers about the availability of funds deposited on general purpose reloadable prepaid cards (GPR Cards).

On its website, NetSpend indicates that its target customers are those without a traditional bank account or who “rely on alternative financial services.”  According to the FTC’s November 2016 complaint, NetSpend’s advertising promises “guaranteed approval” and “immediate access” to funds that are “always available.”  Instead, the complaint alleges, cardholders experienced delayed or denied access to funds on their GPR Cards and NetSpend depleted account balances by charging inactivity fees and often delayed resolving and providing provisional credit for account errors.  The FTC also noted in its complaint that thousands of customers “complained about NetSpend’s practices to government authorities, Better Business Bureau and NetSpend itself.”

Under the terms of the settlement, NetSpend agreed to pay $53 million, $40 million of which will be refunded directly to consumers.  The settlement also requires NetSpend to remediate the deceptive advertising about its GPR Cards.

Acting FTC Chairman Maureen K. Ohlhausen issued a dissenting statement in which she argues that NetSpend’s advertising, taken in context, is not deceptive because “reasonable consumers” would understand that “immediate access” refers to the “timesaving benefits of direct deposit”  over paper checks.  She also argues that the link between the monetary penalties and the deceptive conduct is lacking without evidence that some NetSpend customers abandoned their GPR Cards because of the deceptive advertising.

Given the uncertain future of the CFPB in the Trump Administration and the recent CFPB proposed rule to delay for six months (to April 1, 2018) the effective date of its Prepaid Accounts Final Rule, the future of regulation in the prepaid industry is unclear.

Copyright 2019 K & L Gates


About this Author

Julia Jacobson, KL Gates Law Firm, Transaction Privact Attorney

Julia Jacobson is a partner in the Boston office of K&L Gates LLP. Ms. Jacobson’s practice focuses on privacy and data protection and marketing, advertising and promotions. She has significant experience counseling clients in the consumer products goods, ecommerce and technology industries.

Ms. Jacobson regularly counsels clients on an array of data privacy, security, transfer and acquisition matters. She regularly assists clients with the design and development of privacy-sensitive policies for collection and use of personal data, incident...

Eric A. Love, KL Gates, Capital Markets Compliance Lawyer, Treasury Legislation Attorney
Law Clerk

Eric A. Love is a member of K&L Gates’ Public Policy and Law Practice and is based in the Washington, D.C. office. Mr. Love focuses on federal legislative and regulatory policy issues related to financial services and capital markets, with a particular emphasis on securities and corporate governance. 

Prior to joining K&L Gates, Mr. Love served as a special assistant in the Office of Legislative Affairs at the U.S. Department of the Treasury. In this capacity, he worked to help advance Treasury’s legislative agenda on a broad portfolio of international economic issues, including international financial services regulation, development, banking and securities, trade and investment, climate finance and monetary affairs. 

Immediately before joining Treasury, Mr. Love served for six years in a number of positions in the office of Congressman Melvin L. Watt of North Carolina, including as the senior legislative staff member responsible for advising the Congressman on all issues within the jurisdiction of the House Financial Services Committee.