NetSpend 2014 Annual Report Download - page 16

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financial regulatory reform, may have a significant and negative impact on the Company and its clients, which
could impact TSYS’ earnings through fee reductions, higher costs (both regulatory and implementation) and new
restrictions on operations. The Financial Reform Act may also impact the competitive dynamics of the financial
services industry in the U.S. by more adversely impacting large financial institutions, some of which are TSYS
clients, and by adversely impacting the competitive position of U.S. financial institutions in comparison to foreign
competitors in certain businesses.
The Financial Reform Act, which includes the Durbin Amendment to the Electronic Funds Transfer Act, mandates
that the Board of Governors of the Federal Reserve System (Board) limit debit card interchange fees. Final rules
were issued in June 2011. The final rules cap interchange fees for debit transactions at $0.21 plus five basis
points of the transaction and require that the amount of any debit interchange transaction fee charged be
reasonable and proportional to the costs incurred in connection with the transaction. In July 2013, a federal court
invalidated these rules and ordered the Board to revise them. However, a federal appeals court reversed the
lower court decision, which effectively reinstated the Board’s interchange rules, and the U.S. Supreme Court
determined not to review the appeals court decision.
Although this legislative action by the U.S. Congress had been anticipated for some time, it remains impossible
to predict the impact, if any, that the law and the regulations to be promulgated thereunder may have on the
Company’s operations or its financial condition in the future. However, as TSYS’ business is predominately credit
card related, the Durbin Amendment is not expected to have a significant negative impact upon TSYS’ business.
The Financial Reform Act also created a new Consumer Financial Protection Bureau (“CFPB”) with responsibility
for regulating consumer financial products and services and enforcing most federal consumer protection laws in
the area of financial services, including consumer credit and the prepaid card industry. For example, the CFPB
has proposed regulations regarding the prepaid industry, which, if adopted as proposed, could impose
significant additional disclosure requirements, overdraft requirements, and other requirements on the prepaid
card industry, including our NetSpend business, effective in 2016. Similarly, other future actions of the CFPB may
make payment card or product transactions generally less attractive to card issuers, acquirers, consumers and
merchants by further regulatory disclosures, payment card practices, fees, routing and other matters with respect
to credit, debit and prepaid cards, and thus negatively impact our business.
Financial Review
This Financial Review provides a discussion of critical accounting policies and estimates, related party transactions
and off-balance sheet arrangements. This Financial Review also discusses the results of operations, financial
position, liquidity and capital resources of TSYS and outlines the factors that have affected its recent earnings, as
well as those factors that may affect its future earnings. The accompanying Consolidated Financial Statements and
related Notes are an integral part of this Financial Review and should be read in conjunction with it.
Critical Accounting Policies and Estimates
Risk factors that could affect the Company’s future operating results and cause actual results to vary materially
from expectations are listed in the Company’s forward-looking statements. Negative developments in these or
other risk factors could have a material adverse effect on the Company’s financial position, results of operations
and cash flows.
TSYS’ financial position, results of operations and cash flows are impacted by the accounting policies the
Company has adopted. Refer to Note 1 in the Consolidated Financial Statements for more information on the
Company’s basis of presentation and a summary of significant accounting policies.
Management believes that the following accounting policies are the most critical to fully understand and evaluate
the Company’s results. Within each critical policy, the Company makes estimates that require management’s
subjective or complex judgments about the effects of matters that are inherently uncertain.
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