Netspend, a prepaid card company owned by Total System Services (TSYS), has agreed to pay $53m to resolve the Federal Trade Commission's (FTC's) allegations that it misled users about access to funds deposited onto their cards.
In its advertisement, Netspend made lofty claims which made the customers believe that they can purchase cards, load fund and be able to use them immediately. Contrary to its ready-to-use claims, the users had to wait for weeks while some users were never able to access their funds.
To activate their cards, the users were required to contact NetSpend to provide personal identification information, including Social Security numbers, date of birth, and utility bills, to get the card fully activated.
The federal regulator, which probed a number of Netspend user accounts from January 2010 through August 2016, found that the company failed to undertake the necessary steps to verify customers’ identities before activating their accounts. Thus, the company violated the provisions of the USA PATRIOT Act, which requires firms to verify consumers’ identities before activating their accounts.
The regulator also accused NetSpend for being slow to resolve account errors, and failed to provide or significantly delays providing provisional credits for account errors.
Under the terms of the settlement, NetSpent will provide $53m to certain customers who purchased NetSpend prepaid cards between 1 January 2010 and 31 August 2016. Of the $53m, $13m will be used to repay fees charged to cardholder prior to 31 August 2016. NetSpend will inform customers covered by the settlement.
Commenting on the settlement, TSYS said: “Netspend is pleased to have resolved this 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."