NetSpend 2010 Annual Report Download - page 28

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Table of Contents
manager or member service provider of our issuing banks' prepaid debit card programs. We currently participate in the card associations and
network organizations as a program manager and third-party processor of our card programs through sponsorship by our issuing banks. The
card associations and network organizations frequently amend their rules and regulations. If we or one of our issuing banks fails to comply with
the rules and regulations of the card associations or network organizations, or we fail to comply with the applicable program requirements of
our issuing banks, the card associations and network organizations could limit, suspend or terminate our participation in the card associations
and network organizations or levy fines against us. We pay sponsorship, licensing and processing fees to card associations and network
organizations for services they provide in processing transactions routed through their networks. The amounts of these fees are currently fixed
by the card associations and network organizations in their sole discretion, and are subject to increase at any time. We may pass through to our
cardholders increases in these fees, but competitive pressures might prevent us from passing all or some of such increases through to our
cardholders in the future. To the extent that we are unable to do so, our cost of revenues would increase and our net income would decrease,
assuming no change in transaction volumes. Any such decrease in net income could have a material adverse effect on our financial condition
and operating results.
The termination of our participation in the card associations and network organizations, or any changes in their rules and regulations or
our issuing banks' program requirements that would impair our participation in the card associations and network organizations, could require
us to alter or suspend processing services that we provide to the issuing banks with respect to our prepaid debit cards, which would adversely
affect our business. Further, if any of our issuing banks loses its sponsorship in the card associations and network organizations, and we are
unable to secure another bank to sponsor us as a program manager and third-party processor with such card association or network
organization, we will not be able to process transactions with respect to our prepaid debit cards and our business would be adversely affected.
Unauthorized disclosure of cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and
protracted and costly litigation.
We collect and store personally identifiable information about our cardholders, including names, addresses, social security numbers,
driver's license numbers and account numbers, and maintain a database of cardholder data relating to specific transactions, including account
numbers, in order to process transactions and prevent fraud. As a result, we are required to comply with the privacy provisions of the Gramm-
Leach-Bliley Act, various other federal and state privacy statutes and regulations, and the Payment Card Industry Data Security Standard, each
of which is subject to change at any time. Compliance with these requirements is often difficult and costly, and our failure, or our distributors'
failure, to comply may result in significant fines or civil penalties, regulatory enforcement action, liability to our issuing banks and termination
of our agreements with one or more of our issuing banks, each of which could have a material adverse effect on our financial position and/or
operations. In addition, a significant breach could result in our being prohibited from processing transactions for any of the relevant card
associations or network organizations, including Visa, MasterCard or PULSE, which would also have a significant material adverse impact on
our financial position and/or operations.
Furthermore, if our computer systems are breached by unauthorized users, we may be subject to liability, including claims for
unauthorized purchases with misappropriated bank card information, impersonation or similar fraud claims. We could also be subject to
liability for claims relating to misuse of personal information, such as unauthorized marketing purposes, or failure to comply with laws
governing notification of such breaches. These claims also could result in protracted and costly litigation. In addition, we could be subject to
penalties or sanctions from the relevant card associations or network organizations.
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