Green Dot 2012 Annual Report Download - page 26

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Fraudulent and other illegal activity involving our products and services could lead to reputational damage
to us, reduce the use and acceptance of our cards and reload network, and may adversely affect our financial
position and results of operations.
Criminals are using increasingly sophisticated methods to engage in illegal activities involving prepaid cards or
cardholder information, such as counterfeiting, fraudulent payment or refund schemes and identity theft. We rely upon
third parties for some transaction processing services, which subjects us and our cardholders to risks related to the
vulnerabilities of those third parties. A single significant incident of fraud, or increases in the overall level of fraud,
involving our cards and other products and services, could result in reputational damage to us, which could reduce
the use and acceptance of our cards and other products and services, cause retail distributors or network acceptance
members to cease doing business with us or lead to greater regulation that would increase our compliance costs.
Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines, which
could adversely affect our business, operating results and financial condition. Furthermore, we have accelerated the
implementation of risk control mechanisms that have made it more difficult for legitimate customers to obtain and use
our products and services. We believe it is likely that our risk control mechanisms will continue to adversely affect our
new card activations from legitimate customers for the foreseeable future and that our operating revenues, excluding
stock-based retailer incentive compensation, will be negatively impacted as a result.
As a bank holding company, we are subject to extensive and potentially changing regulation and may be
required to serve as a source of strength for Green Dot Bank, which may adversely affect our business,
financial position and results of operations.
We became a bank holding company in December 2011. As a bank holding company, we are subject to
comprehensive supervision and examination by the Federal Reserve Board and must comply with applicable
regulations and other commitments we have agreed to, including financial commitments in respect to minimum capital
and leverage requirements. If we fail to comply with any of these requirements, we may become subject to formal or
informal enforcement actions, proceedings, or investigations, which could result in regulatory orders, restrictions on
our business operations or requirements to take corrective actions, which may, individually or in the aggregate, affect
our results of operations and restrict our ability to grow. If we fail to comply with the applicable capital and leverage
requirements, or if our subsidiary bank fails to comply with its applicable capital and leverage commitments, the Federal
Reserve Board may limit our ability to pay dividends, or if we become less than adequately capitalized, require us to
raise additional capital. In addition, as a bank holding company and a financial holding company, we are generally
prohibited from engaging, directly or indirectly, in any activities other than those permissible for bank holding companies
and financial holding companies. This restriction might limit our ability to pursue future business opportunities which
we might otherwise consider but which might fall outside the scope of permissible activities.
Moreover, in response to the financial crisis of 2008 and the Wall Street Reform and Consumer Protection Act, or
the Dodd-Frank Act, banking supervisors in the United States are presently in the process of implementing a variety
of new requirements on banking entities. Some of these requirements apply or will apply directly to us or to our subsidiary
bank, while certain requirements apply or will apply only to larger institutions. Although we cannot anticipate the final
form of many of these regulations, how they will affect our business or results of operations, or how they will change
the competitive landscape in which we operate, such regulations could have a material adverse impact on our business
and financial condition, particularly if they make it more difficult for us or our retail distributors to sell our card products.
Changes in laws and regulations to which we are subject, or to which we may become subject, may increase
our costs of operation, decrease our operating revenues and disrupt our business.
Changes in laws and regulations or the interpretation or enforcement thereof may occur that could increase our
compliance and other costs of doing business, require significant systems redevelopment, or render our products or
services less profitable or obsolete, any of which could have an adverse effect on our results of operations. We could
face more stringent anti-money laundering rules and regulations, as well as more stringent licensing rules and
regulations, compliance with which could be expensive and time consuming.
Changes in laws and regulations governing the way our products and services are sold or in the way those laws
and regulations are interpreted or enforced could adversely affect our ability to distribute our products and services
and the cost of providing those products and services. If onerous regulatory requirements were imposed on the sale
of our products and services, the requirements could lead to a loss of retail distributors, which, in turn, could materially
and adversely impact our operations. In addition, if our products are adversely impacted by the interpretation or
enforcement of these regulations or we or any of our retail distributors were unwilling or unable to make any such
operational changes to comply with the interpretation or enforcement thereof, we would no longer be able to sell our
cards through that noncompliant retail distributor, which could have a material adverse effect on our business, financial
position and results of operations.