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BOEING EMPLOYEES' CREDIT UNION
July 7, 2004
Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street N.W.
Washington, DC 20429
Subject: Definition of "Deposit"; Stored Value Cards
Dear Mr.Feldman:
Boeing Employees' Credit Union (BECU) appreciates the opportunity to
comment on the proposed rule that would clarify the meaning of whether the
funds held at insured banks for stored value cards actually qualify under
FDIC's definition of "deposits." BECU is a state-chartered, federally
insured credit union with assets of $4.6. billion and a membership base of
over 365,000. The National Credit Union Administration (NCUA) often seeks to
maintain parity on its insurance rules and those of the FDIC. For these
reasons, BECU would like to comment on this proposal.
We feel the FDIC should adopt the proposed rule. The classification
scheme and description of the funds underlying stored value cards indicated
in the FDIC's General Counsel's Opinion Number 8, are no longer current.
Therefore, in an effort to provide clear and concise consumer protection
disclosures, the FDIC should adopt the proposal in an effort to classify the
funds underlying the new types of stored value cards as deposits (or
otherwise) for clarification and insurance purposes.
For insurance purposes, we believe the funds should not be insured as
deposits when the insured financial institution (IFI) is the issuer and
party that promises to make payments on the cards and when the IFI maintains
a pooled "reserve account" but maintains no sub accounts or other
supplemental records reflecting the amount of money owed to particular
cardholders.
Our opinion on the treatment of payroll cards are if the funds are held
by the IFI as described above, then the funds underlying payroll cards
should not be treated as deposits for insurance purposes to the payroll
recipients. Although, such funds should be treated as deposits as to the
payroll card sponsoring companies. However, if the IFI maintains individual
accounts for each cardholder (recipient) then, according to the definition
of deposits at 12 USC 1813: "funds held by a bank... for a special or
specific purpose..." such funds should be treated as deposits and as such,
receive FDIC insurance coverage.
Prepaid cards are often offered by a retailer (in a "closed system") and
are different than a "stored value card" offered by a financial institution
(in an "open system"). A prepaid card does not move through a "clearing"
process. In other words, the "value" on the card does not depend on whether
a financial institution holds sufficient funds to back-up the card.
Definitely, the retailer who accepts the card does not expect to receive
payment through a financial institution. On the contrary, the retailer has
been prepaid through the retailer's sale of the card. Through such sale, the
ownership of the cardholder's funds passes from the cardholder to the
retailer.
Debit and check cards are often offered by financial institutions (in an
"open system") and the value on the card depends on whether the cardholder's
financial institution account holds sufficient funds to cover the card. As
with a "stored value card", the retailer who accepts the card expects to
receive payment through a financial institution.
Payroll cards are often offered by sponsoring companies (employers) to
cardholders (employees), in conjunction with financial institutions (in an
"open system") and the value on the card depends on whether the cardholder's
ownership interest in the sponsoring company's deposited funds are
sufficient to back up the card. Insurance coverage eligibility depends on
the ownership structure of the funds, designated by contract between the
sponsoring companies and the financial institutions. As with a "stored value
card" the retailer who accepts the card expects to receive payment through a
financial institution.
We agree with the proposal on disclosure requirements, however, we feel
it should be consistent with the current requirements for any other deposit
product. We also agree with the disclosures on "insured" and "non-insured"
funds. It wouldn't appear to be overly burdensome to add a couple more lines
on the disclosure describing the coverage as discussed in the proposal. In
an effort to increase thrift amongst our members, we need to encourage our
membership to participate in credit union programs designed to save money
and resources. Accordingly, by communicating insurance coverage for funds
underlying the stored value cards, we are encouraging our member to
participate in programs and ideally promoting thrift.
We're not sure of how a stored value card system where the cards are
issued by an insured depository institution and the institution maintains a
pooled "reserve account" showing its liabilities for all cards but does not
maintain individual sub accounts to reflect its liabilities to individual
cardholders can be done. It doesn't seem possible for the IFI to track
cardholders' ownership interest in the funds. Accordingly, the IFI would
establish accounts for the sponsoring companies and the IFI's fiduciary duty
for the funds would flow as far as the sponsoring company. The IFI would not
be involved with the relationship or contractual arrangement between the
sponsoring company and the cardholder, concerning ownership interests in the
funds underlying the "stored value card".
Thank you for the opportunity to respond to the proposal. We look forward
to the final outcome.
Sincerely,
Gary J. Oakland
President and CEO
Grace Semingsen
Vice President of Member Services
Boeing Employees' Credit Union
Seattle, WA 98124
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