On November 10, the Federal Trade Commission filed a complaint in the Northern District of Georgia against NetSpend Corporation, alleging that the company repeatedly deceived consumers about their ability to access funds deposited on the company’s debit cards.   

NetSpend markets, sells, and services prepaid debit cards, including general purpose reloadable cards.  According to the FTC, NetSpend targets “unbanked” and “underbanked” consumers—those who do not have bank accounts or who use non-bank financial services such as payday loans or rent-to-own services.  Consumers can load cash onto NetSpend cards at retail locations or have their paychecks, government benefits, and tax refunds deposited directly onto their cards.  The cards operate on the Visa or MasterCard network, and consumers can use the cards like credit or debit cards.   

The FTC’s complaint alleges that NetSpend represents to consumers that their cards are ready for immediate use and will provide them with instantaneous access to their funds.  However, the FTC argues, many NetSpend customers who have loaded money onto their cards find they cannot access the funds, either because NetSpend denies or delays activation of the debit cards or because it blocks consumers from using their cards.  Despite NetSpend’s claims of “guaranteed approval,” consumers still must meet certain requirements to become cardholders, including an identity verification process, which many NetSpend customers have difficulty fulfilling.  According to the FTC, many consumers have lost funds they placed on cards before receiving final approval from NetSpend, and many of those who could not access their funds suffered severe financial hardships as a result.  Furthermore, the FTC alleges that those consumers who attempted to dispute charges were not provided with provisional cards as promised by NetSpend and those consumers who attempted to close their cards had to wait several weeks before receiving refund balances. 

“Innovative financial products can offer many benefits to consumers.  However, when companies promise consumers ‘immediate access’ to their funds, they need to honor those promises,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.  The FTC seeks return of consumers’ funds and injunctive relief to prevent further consumer injury. 

A copy of the complaint is available here.