Green Dot 2010 Annual Report Download - page 51

Reserve for Uncollectible Overdrawn Accounts
Cardholder account overdrafts may arise from maintenance fee assessments on our GPR cards or
from purchase transactions that we honor on GPR or gift cards, in each case in excess of the funds in the
cardholder’s account. We are responsible to the banks that issue our cards for any losses associated with
these overdrafts. Overdrawn account balances are therefore deemed to be our receivables due from
cardholders, and we include them as a component of accounts receivable, net, on our consolidated
balance sheets. The banks that issue our cards fund the overdrawn account balances on our behalf. We
include our obligations to them on our consolidated balance sheets as amounts due to card issuing banks
for overdrawn accounts, a current liability, and we settle our obligations to them based on the terms
specified in their agreements with us. These settlement terms generally require us to settle on a monthly
basis or when the cardholder account is closed, depending on the card issuing bank.
We generally recover overdrawn account balances from those GPR cardholders that perform a reload
transaction. In addition, we recover some purchase transaction overdrafts through enforcement of payment
network rules, which allow us to recover the amounts from the merchant where the purchase transaction was
conducted. However, we are exposed to losses from unrecovered GPR cardholder account overdrafts. The
probability of recovering these amounts is primarily related to the number of days that have elapsed since an
account had activity, such as a purchase, ATM transaction or fee assessment. Generally, we recover 50-60%
of overdrawn account balances in accounts that have had activity in the last 30 days, 10-15% in accounts that
have had activity in the last 30 to 60 days, and less than 10% when more than 60 days have elapsed.
We establish a reserve for uncollectible overdrawn accounts for maintenance fees we assess and
purchase transactions we honor, in each case in excess of a cardholder’s account balance. We classify
overdrawn accounts into age groups based on the number of days since the account last had activity. We
then calculate a reserve factor for each age group based on the average recovery rate for the most recent six
months. These factors are applied to these age groups to estimate our overall reserve. We rely on these
historical rates because they have remained relatively consistent for several years. When more than 90 days
have passed without any activity in an account, we consider recovery to be remote and charge off the full
amount of the overdrawn account balance against the reserve for uncollectible overdrawn accounts.
Overdrafts due to maintenance fee assessments comprised approximately 95% of our total over-
drawn account balances due from cardholders for the year ended December 31, 2010. We charge our
GPR cardholder accounts maintenance fees on a monthly basis pursuant to the terms and conditions in
the applicable cardholder agreements. Although cardholder accounts become inactive or overdrawn, we
continue to provide cardholders the ongoing functionality of our GPR cards, which allows them to reload
and use their cards at any time. As a result, we continue to assess a maintenance fee until a cardholder
account becomes overdrawn by an amount equal to two maintenance fees, currently $6.00 for the Walmart
MoneyCard and $11.90 for our Green Dot-branded GPR cards. We recognize the fees ratably over the
month for which they are assessed, net of the related reserve for uncollectible overdrawn accounts, as a
component of card revenues in our consolidated statements of operations.
We include our reserve for uncollectible overdrawn accounts related to purchase transactions in other
general and administrative expenses in our consolidated statements of operations.
Our recovery rates may change in the future in response to factors such as the pricing of reloads and
new cards and the availability of substitute products.
Employee Stock-Based Compensation
Effective August 1, 2006, we adopted a new accounting standard using the prospective transition
method, which required compensation expense to be recognized on a prospective basis. Compensation
expense recognized relates to stock options granted, modified, repurchased, or cancelled on or after
August 1, 2006 and stock purchases under our employee stock purchase plan, or ESPP. We record
compensation expense using the fair value method of accounting. For stock options and stock purchases
under the ESPP, we base compensation expense on fair values estimated at the grant date using the
42