Netspend Settles with FTC for $53 Million
Facing charges by the Federal Trade Commission that Netspend deceived cardholders and denied or delayed their access to funds, the TSYS subsidiary agreed to a $53 million settlement, which consists of $40 million on deposit in customer accounts and $13 million in refunded fees. Netspend doesn’t admit any wrongdoing under the terms of the settlement.
Dating back to a November complaint, the FTC said consumers were prevented from accessing their funds because of inefficient identity verification processes and that the delay in access contradicted Netspend’s marketing verbiage that promotes immediate access to funds. In its defense, Netspend maintained any delays or denials were the result of the company following federal mandates to confirm identities of consumers acquiring Netspend cards and to monitor for fraud.
The March 31 settlement pertains to an undisclosed number of consumers who purchased Netspend prepaid cards between Jan. 1, 2010, and Aug. 31, 2016, and never completed the required steps to verify their identities and activate their cards, according to Netspend. The company said it will continue assisting these consumers in accessing approximately $40 million in funds.
“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,” according to a Netspend statement. “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.”
Netspend added that it remains committed to meeting federal obligations to combat identity theft, fraud, money laundering and terrorist financing. The Netspend Prepaid Debit Card was named Consumer Champion-U.S. for the 2016 Pay Awards.
The FTC approved the order by a vote of 2-1. Acting Chairman Maureen Ohlhausen was the dissenting vote, asserting that the commission’s majority vote didn’t consider the context of the company’s claims and that the settlement imposes remuneration unrelated to Netspend’s alleged deceptive advertising.
“Netspend’s advertising focused largely on [its] use as a direct deposit vehicle and expressly represented that consumers would receive ‘immediate access’ to their paycheck funds,” Ohlhausen wrote. The phrase ‘immediate access’ was isolated from its context and treats the phrase as a standalone guarantee that consumers’ access to direct deposit funds will never be delayed, she added.
“As FTC law has long recognized, ‘the tendency of advertising to deceive must be judged by viewing it as a whole, without emphasizing isolated words or phrases apart from their context,’” she wrote. “In the context of direct deposit advertising, reasonable consumers would interpret ‘immediate access’ to refer to the timesaving benefits of direct deposit as compared to waiting for a paper check to be mailed, physically depositing the check at the bank and waiting for the bank to make those funds available in an individual’s account. Banks, credit unions, and even the Social Security Administration commonly use the phrase ‘immediate access’ to describe the timesaving benefits of direct deposit.”
Furthermore, even if claims were deceptive, the order levies monetary relief insufficiently related to the claims. “Some consumers place money on a card but never activate it,” according to Ohlhausen. “Based on the evidence I have seen, I do not believe that consumers abandoned such funds because of Netspend’s allegedly deceptive advertising.”