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FDIC Federal Register Citations U.S. Bancorp From: JANICE.DECKER@usbank.com [mailto:JANICE.DECKER@usbank.com] Sent: Monday, November 07, 2005 12:22 PM To: Comments Cc: john.focht@usbank.com Subject: Part 330--Stored Value Cards - Deposit Insurance Coverage; Stored Value Cards and Other Nontraditional Access Mechanisms Mr. Robert E. Feldman Executive Secretary Attn: Comments/Legal ESS Federal Deposit Insurance Corporation 550 17th Street, NW Washington, DC 20429 Re: Part 330 Stored Value Cards Dear Mr. Feldman: U.S. Bancorp appreciates the opportunity to comment on a new proposed rule (Proposed Rule) issued by the Federal Deposit Insurance Corporation (FDIC) as a replacement for its April 2004 proposed rule, to clarify when funds at insured depository institutions issuing prepaid cards would constitute deposits under the Federal Deposit Insurance Act. Under the proposed rule, deposit insurance coverage could be extended broadly to a variety of prepaid cards (cards), including gift and payroll cards. Based on total assets of over $206 billion, U.S. Bancorp is the sixth largest bank holding company in the United States. Major lines of business include wholesale banking, consumer banking, private client, trust and asset management, payment services and is one of the leading/largest issuers of prepaid cards in the United States. U.S. Bancorp has been a leader in advancing new prepaid payment products in the country and is pleased to present the specific comments to the proposal as outlined below. Overview In reviewing the Proposed Rule, U.S. Bancorp has identified two specific areas that the FDIC is attempting to address. The first covers the ability to extend pass-through deposit insurance rules to cards issued by non-financial institutions, where the cards sold and the funds received are deposited in the bank by the party that sold the cards. The second area deals with the scenario where the card is sold directly by a financial institution (bank), whereby the FDIC is proposing broad direction that all such sales would be considered deposits of the cardholder and, as such, insured for that cardholder. US Banks Position In the first case, if the seller of the card, e.g., a retailer, sells cards, receives monies and deposits the funds into a bank account, one of two things could occur. If the monies are deposited in the sellers name, the deposit would be an insured deposit of the seller. If the records of the depository institution indicate that the funds no longer are liabilities owed to the seller, but to the cardholders, and subsequent subsidiary records identify those cardholders and the amounts due to each, the funds would be insured at the cardholder level. U.S. Bank agrees with this part of the proposal. The second part of the Proposed Rule covers a banks sale of cards. U.S. Bancorp believes this part of the Proposed Rule is too broad. The FDIC must distinguish between different types of prepaid cards sold by banks. We feel that the FDIC and the banks need to explore and determine whether or not the underlying funds received from the cards sold should be considered deposits. Is the owner or buyer of the card relying on the security of the banking system, including the deposit insurance system, to protect his/her funds that were placed on the card? U.S. Bancorp feels that the answer to this question changes with the type of product funded, and as such, must distinguish between the various products that are sold. In particular, U.S. Bancorp recommends that the FDIC examine the rationale for including funds contained in certain cards, such as gift cards, as deposits. Gift cards are fundamentally different from bank deposits; they are far less flexible than deposit accounts. At the same time, gift cards are more flexible than retailer gift certificates by providing a broader range of transaction alternatives for the consumer, but are not much different than certificates that are not covered by insurance. In addition, the buyer or recipient of the gift card seldom chooses it because of the financial institution that issues it, with the thought of it being a deposit account, nor is it purchased because it is insured. Lastly, buyers and recipients of these cards are seldom registered as the owners of the cards; cards are anonymous and can move from person to person. Broadly including these cards in the definition of bank issued prepaid cards that are deposits would not be appropriate. In contrast, payroll cards, government disbursement cards and general purpose re-loadable cards have already been addressed in the market as far as deposit insurance is concerned. Many of these accounts are funded through employer/government/parent deposits and function as a substitute for traditional bank deposit accounts and are already structured so that they would be treated as insured deposits. We recommend that the FDIC come up with a workable distinction between prepaid cards that function as insured deposits and prepaid cards that are not. These distinctions need to be both meaningful and practical while consistent with the definition of deposit in the FDIA. As we read the Proposed Rule, we feel that it depicts that all monies received by banks in the sale of prepaid cards are considered as deposits. U.S. Bancorp disagrees with this approach. Disclosures related to cards There may be a concern as to whether or not the cardholder knows or understands that their card is insured. The FDIC could, require a simple notice of insurance in the agreements issued for prepaid cards. If the card does not qualify for deposit insurance, no disclosure would be made. Impact on other laws U.S. Bancorp appreciates the work that the FDIC is undertaking with the Proposed Rule. At the same time, as a pioneer in this regard, the FDIC must also acknowledge that the Proposed Rule, if adopted, will affect the views of other regulators. If the FDIC treats some or all cards as deposits, it will inevitably affect the way that other regulators view the appropriate coverage of the regulations that they administer. U.S. Bancorp thanks you for the opportunity to comment on this important proposal. If you have any questions concerning these comments or our position, please do not hesitate to contact me at (414) 765-6260. Sincerely, John Focht Vice President
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Last Updated 11/08/2005 | Regs@fdic.gov |