NetSpend 2011 Annual Report Download - page 50

Table of Contents
A significant portion of our business is conducted through retail distributors that provide load and reload services to cardholders at their
locations. Members of our distribution and reload network collect our cardholders' funds and remit them by electronic transfer to our Issuing
Banks for deposit in the cardholder accounts. Our Issuing Banks typically receive our cardholders' funds no earlier than three business days
after they are collected by the retailer. If any retailer fails to remit our cardholders' funds to our Issuing Banks, we typically reimburse our
Issuing Banks for the shortfall created thereby. We manage the risk associated with this process through a formalized set of credit standards,
volume limits and deposit requirements for certain retailers and by typically maintaining the right to offset any settlement shortfall against the
commissions payable to the relevant retailer. We have not experienced any significant losses associated with settlement failures and we have
not recorded a settlement guarantee liability as of December 31, 2011. As of December 31, 2011, our estimated gross settlement exposure was
$17.1 million.
Our cardholders can in some circumstances incur charges in excess of the funds available in their accounts and are liable for the resulting
overdrawn account balance. Although we generally decline authorization attempts for amounts that exceed the available balance in a
cardholder's account, the application of the Networks' rules and regulations, the timing of the settlement of transactions and the assessment of
subscription, maintenance or other fees can, among other things, result in overdrawn card accounts. We also provide, as a courtesy and at our
discretion, certain cardholders with a "cushion" which allows them to overdraw their card accounts by up to $10. In addition, eligible
cardholders may enroll in our Issuing Banks' overdraft protection programs and fund transactions that exceed the available balance in their
accounts. We generally provide the funds used as part of this overdraft program (MetaBank will advance the first $1.0 million on behalf of its
cardholders) and are responsible to our Issuing Banks for any losses associated with any overdrawn account balances. As of December 31,
2011, our cardholders' overdrawn account balances totaled $9.0 million. As of December 31, 2011, our reserve for the losses we estimate will
arise from processing customer transactions, debit card overdrafts, chargebacks for unauthorized card use and merchant-related chargebacks
due to non-delivery of goods or services was approximately $3.9 million.
Contractual Obligations and Commitments
During the year ended December 31, 2010 we entered into a credit facility with a syndicate of banks with SunTrust Bank as administrative
agent. The initial borrowings under this facility of $58.5 million were used to repay in full the $56.3 million outstanding indebtedness under
our prior credit facility, $0.7 million of accrued interest on such indebtedness and $1.5 million of debt issuance costs associated with the credit
facility. See "Note 10—Debt" to the consolidated financial statements included in this Form 10-K for a discussion of the terms of our credit
facility.
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