NetSpend 2010 Annual Report Download - page 23

Table of Contents
operate our business, each of which could significantly harm our reputation and have a material adverse impact on our business, results of
operations and financial condition.
Our retail distributors are subject to extensive and complex federal and state regulations and new regulations and/or changes to existing
regulations could adversely affect our ability to offer our GPR cards through their locations, which in turn could have an adverse impact
on our business.
As each of our retail distributors offering prepaid cards and related services conducts such activity either as an agent of our issuing banks
or, where applicable, of NetSpend in its capacity as a licensed money transmitter, we do not believe that our distributors would be required to
become licensed as money transmitters in order to engage in such activity. However, there is a risk that a federal or state regulator will take a
contrary position and initiate enforcement or other proceedings against a distributor, us or our issuing banks, which in turn could have an
adverse impact on our business, even if the relevant party were to ultimately prevail in such proceedings. In such event, the relevant party may
have additional arguments available to it that the retail distributor should not be subject to the licensing requirements under the relevant state
money transmitter statutes, and may utilize one or more of these arguments at such time. However, it is possible that the relevant party could be
unsuccessful in making a persuasive argument that the retail distributor should not be subject to such licensing requirements, and therefore
could be deemed to be in violation of one or more of the state money transmitter statutes. Such failure to comply could result in the imposition
of fines, the suspension of the distributor's ability to offer some or all of our GPR cards and related services in the relevant jurisdiction, civil
liability and criminal liability, each of which would likely have a material adverse impact on our revenues.
Our retail distributors include a large number of companies in industries that are highly regulated, such as alternative financial services
providers. It is possible that changes in the legal regime governing such businesses could limit the ability of some of our retail distributors to
distribute our products or adversely impact their business, and thereby have an indirect adverse impact on our business. For example, a large
number of states have either prohibited, or imposed substantial restrictions upon, the offering of "payday loans," and this activity continues to
draw substantial scrutiny from federal and state legislatures, regulatory authorities and various consumer groups. Furthermore, the federal
financial reform legislation enacted in July 2010 grants supervisory authority over entities engaged in this activity to a new Consumer Financial
Protection Bureau, which is directed to promulgate regulations which may significantly impact the operations and/or viability of various
entities, including those engaged in the business of offering payday loans. As a number of our retail distributors, including our largest
distributor, ACE Cash Express, are engaged in offering payday loans, further legislative and regulatory restrictions which negatively impact
their ability to continue their operations could have a corresponding negative impact on our ability to offer our GPR cards through their
locations, potentially resulting in a significant decline in our revenue. In addition, various states have statutes that limit the ability of check
cashers to charge a fee for cashing government-issued checks.
We are subject to extensive and complex federal and state regulation relating to the distribution of our GPR cards through corporate
employers and new regulations and/or changes to existing regulations could adversely affect our business.
We understand that state banking departments, which are charged with regulating the business of money transmission, have traditionally
taken the position that the offering of payroll cards does not constitute money transmission, such that we would not be required to obtain a state
money transmission license in order to engage in such activity. We believe that our marketing, distribution and servicing of GPR cards through
corporate employers as a program manager and third-party service provider to our issuing banks is not subject to regulation under state money
transmitter statutes as we do not handle any related consumer funds at any time. However, there is a risk that a federal or state
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