A Tough Week for General Purpose Reloadable Prepaid Cards
June 1, 2011
Over the past week, general purpose, reloadable prepaid cards have taken a beating in the press and in the public eye. Florida Attorney General Pam Bondi announced on May 19 that she had subpoenaed records from First Data Corp., Green Dot Corp., AccountNow, Inc., NetSpend Corp., and Unirush Financial Services, LLC. She is looking for evidence that the companies may have charged hidden fees and misled consumers about how much prepaid cards could help them rebuild their credit scores.
Shortly thereafter, an opportunistic San Francisco law firm, Robbins Umeda, LLP announced that it has launched “investigations” into NetSpend and Green Dot “for shareholders” to determine whether it might file class action lawsuits against the two companies. In a press release, the firm said it wants to figure out whether “directors and officers of Green Dot harmed the company by breaching their fiduciary duties to shareholders by causing or permitting the company to engage in deceptive and unfair consumer practices.” It makes a similar statement about NetSpend. No shareholders have requested these “investigations” as near as can be determined from publicly available sources, but this represents the danger the prepaid industry faces as sharks smell blood in the water.
It is all but certain that if the Florida investigation turns up any violation of state law, there will be 49 other attorneys general that will follow Bondi’s lead and begin looking for violations of laws in their states. In addition, if lawsuits end up being filed for shareholders, cardholders will likely file lawsuits of their own.
Whatever the outcome, another case still needs to be argued in the court of public opinion. If prepaid cards are all tarred with the same brush, it will become very difficult for companies and consumers to make use of prepaid cards regardless of how fairly their programs are constructed.