Springbok Services Inc.’s recent Chapter 11 bankruptcy filing suggests the prepaid card market is beginning to enter into a period of uncertainty off the heels of new government regulation and slimming margins, observes one analyst.
The Englewood, Colo.-based prepaid card provider filed for Chapter 11 bankruptcy protection June 18 in the U.S. Bankruptcy Court in Colorado, according to court documents.
Springbok’s top 20 creditors are scheduled to meet in Colorado on July 26 as part of the bankruptcy process. Among them is Cleveland-based KeyBank, which issues a portion of Springbok’s MasterCard-branded prepaid cards.
KeyBank has filed the largest claim at $15 million and is focusing its attention any preventing any ill affects the bankruptcy filing might cause cardholders.
“Key has arranged for Springbok to continue processing and servicing outstanding card transactions for 90 to 120 days during the bankruptcy case,” the bank told PaymentsSource in a statement. It also is taking steps to ensure that processing and servicing functions on outstanding card transactions transition smoothly to a new service provider, if necessary.
Springbok’s attorney did not respond to a request for comment.
A recorded phone message at the company’s headquarters confirmed the bankruptcy filing and said most of the staff had been let go “except for a bare-bones crew.”
Small to midsize companies such as Springbok are operating on uneven ground in that they face uncertainties such as the impact of government regulation in the marketplace, says Adil Moussa, an analyst for Aite Group.
“Prepaid is just getting hammered [in the marketplace] right now,” he says. “The margins are thin, and unless you’re bringing a different type of value to the table, you’re not going to survive.”
Moussa expects more prepaid companies to fail or consolidate with others in the aftermath of regulatory changes.
The Credit Card Accountability, Responsibility and Disclosure Act had an immediate affect on the prepaid industry, most notably on gift cards. Part of the new law stipulates the cards cannot expire within five years from being issued and that the terms of expiration must be clear and conspicuous. It also limits the fees issues can charge on dormant cards.
The cost of servicing a single card is outweighing the fees charged in certain prepaid segments, such as network-branded gift cards, Moussa says.
While the number of cards Springbok serviced is unknown, some consumers already have experienced difficulties.
Springbok manages a rewards program for TXU Energy Retail Company LLC, a Dallas-based utility company. Customers enrolled in two different rewards programs received a Visa-branded card.
Most of those customers now cannot access the funds in the card accounts. TXU is unsure how many customers are affected and the total value in the card accounts. The utility company is seeking $95,467.80, according to documents filed with the bankruptcy court.
A TXU spokesperson could not clarify what that amount represents. “We don’t have a clarity right now with this situation,” the spokesperson says. “It’s something we’re working on.”
Court documents also reveal Springbok’s involvement in two other cases.
A former employee filed a civil suit Feb. 17 for unpaid future commissions. Group O Inc., a Milan-Ill.-based marketing firm, filed a civil suit June 8 for a breach of contract, alleging Springbok failed to “procure and maintain professional D&O insurance in the amount specified in the agreement,” according to the court documents. D&O is liability insurance paid to a company’s executives in the event of a lawsuit against those individuals.
Group O also is listed as a Springbok creditor in the bankruptcy filing and is seeking $3.5 million in damages.
MetaBank, a subsidiary of the Sioux Falls, South Dakota-based bank holding company Meta Financial Group Inc., also is listed as a creditor and is seeking $3.4 million damages.
The Credit CARD Act represented only the start of changes that would decrease margins from prepaid products, Moussa says. The economic downturn also has had an effect, he adds.
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