NetSpend 2011 Annual Report Download - page 18

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In addition, because some of our Issuing Banks have appointed us and our distributors as their agents for purposes of providing services in
connection with our prepaid debit cards in various states, the termination of our relationship with one or more of these Issuing Banks would
force us and our distributors to cease offering prepaid debit cards and related services to the extent that we rely on our status as their agent in
order to do so.
SunTrust, an issuer and referral partner for some of our payroll cards, has indicated that it believes we failed to perform an agreed-upon
process to verify the identities of some of the employees holding payroll cards issued by it. We re-performed certain identity verification
procedures with respect to the identified cardholders. SunTrust maintains, however, that it has the continuing right to terminate its contract with
us, although it has not indicated that it intends to do so at this time. Our current contract with SunTrust automatically renewed for one year at
the end of 2011. The loss of our business relationship with SunTrust would mean that, although we would continue to administer our current
portfolio of payroll cards issued by SunTrust, SunTrust would no longer seek to refer its commercial customers to us for payroll card services.
The loss of this distribution channel could reduce our revenue growth in future periods if we are unable to replace SunTrust with other referral
partners.
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 Network
organizations, including Visa, MasterCard or PULSE, which would also have a significant material adverse impact on our financial position
and/or results of operations.
Any data breach or failure to comply with any applicable privacy requirements could result in damage to our reputation, which could
reduce the use and acceptance of our prepaid cards, cause our Issuing Banks or distributors to cease doing business with us or lead to greater
regulation, each of which could have a material adverse impact on our business, results of operations, financial position or potential for growth.
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 any failure to comply with laws governing required notifications of such a breach. These claims also could result in protracted and
costly litigation. In addition, we could be subject to penalties or sanctions from the Networks.
We and our distributors may be subject to claims of patent infringement.
The technologies used in the payments industry are protected by a wide array of patents and other intellectual property rights. As a result,
third parties may assert infringement and misappropriation claims against us from time to time based on our general business operations or the
equipment, software or services we use or provide. Various third parties have asserted or suggested the possibility
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