Banking and Finance Law Daily Wrap Up, ENFORCEMENT ACTIONS—Netspend to pay $1M in settlement for charging New Yorkers illegal fees, (Jan 31, 2025)

By Suzanne Cosgrove

The prepaid card provider agreed to pay more than $735,000 to affected New Yorkers and over $350,000 in penalties to the state.

New York Attorney General (AG) Letitia James announced her office secured over $1 million from Ouro Global, Inc. (Ouro), which owns Netspend Corp. (Netspend), a provider of reloadable debit cards and payroll cards. In addition to the monetary penalties, the settlement also requires Netspend to change its policies to fully comply with New York laws (In the Matter of the Investigation by Letitia James, Attorney General of The State of New York, of Ouro Global, Inc., f/k/a Netspend, Assurance No. 25-001 (Jan. 30, 2025)).

“Netspend took advantage of tens of thousands of consumers and even deprived vulnerable New Yorkers of their hard-earned benefits like Social Security,” said Attorney General James, in a release. “This settlement will return hundreds of thousands of dollars to New Yorkers and ensure that Netspend ends its illegal practices.”

Sky-high rates. An Office of the Attorney General (OAG) investigation found that Netspend violated consumer protection laws and harmed low-income New Yorkers. According to the Assurance of Discontinuance, Netspend was a leading participant in the prepaid and payroll card markets from 1999 to 2023. During the period covered by the OAG’s investigation, Netspend operated a prepaid debit card business in which it marketed directly to consumers prepaid, general purpose, reloadable debit cards (GPR cards). Consumers could purchase and load funds onto the cards, which were held in bank accounts maintained by certain third-party state or national banks.

Netspend also operated a payroll card business that gave employers the option to offer employees payroll cards as alternatives to paper checks or direct deposits of their wages. As with GPR cards, wages loaded onto payroll cards were held in bank accounts maintained by partner banks.

In addition, Netspend operated a paycheck advance program that allowed workers to receive payments that supposedly represented advances on future wages. However, the fees Netspend charged consumers in this program amounted to interest rates with substantial annualized costs.

While New York law limits annual interest rates to 16 percent for unlicensed lenders such as Netspend and 25 percent for licensed lenders, an OAG investigation uncovered more than 4,000 cases in which consumers were charged an effective annual interest rate of over 300 percent.

The investigation revealed that most of these costs fell on New Yorkers who relied on repeated use of its paycheck advance program, which allowed workers to receive payments that supposedly represented advances on future wages.

Illegal fees. Netspend also misled its customers and charged a wide range of illegal fees. Netspend’s marketing materials misled consumers about ATM fees that would be charged when using a Netspend card, leading its customers to believe they would be able to avoid all fees by using in-network ATMs, the OAG said.

In reality, customers were charged fees on all ATM transactions, earning Netspend millions of dollars. Netspend also charged its payroll card customers a wide range of illegal fees after those fees were banned in New York, including fees for inquiring about an account balance at ATMs, fees for attempting transactions at ATMs that were declined and foreign exchange fees.

The OAG investigation also found that Netspend facilitated violations of New York’s Exempt Income Protection Act. Under this law, state or federal benefits such as Social Security benefits, veterans’ benefits, disability insurance, and unemployment insurance are protected from debt collectors up to a certain amount: $3,840 for New York City, Long Island, and Westchester County residents, and $3,600 for all other New York residents.

Netspend failed to follow this law, freezing customers’ accounts and allowing debt collectors to seize its customers’ funds, even when they fell below the legal limit.

Business changes hands. On or about Apr. 26, 2023, Netspend’s GPR card business and the card issuing and program management aspects of its payroll card business, together with the corporate entity Netspend, were sold by Global Payments Inc., Netspend’s former parent, to a partnership between Rêv Worldwide and Searchlight Capital Partners, L.P. Global Payments Inc. retained the employer relationships associated with Netspend’s payroll card business.

Netspend subsequently changed its name to Ouro Global, Inc., the respondent to the Assurance. Its headquarters are in Austin, Texas, and has regional offices around the world.

Companies: Global Payments Inc.; Netspend Corporation; Ouro Global, Inc.; Rêv Worldwide, Inc.; Searchlight Capital Partners, L.P.

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