Federal Deposit
Insurance Corporation

KeyBank NA

November 7, 2005

Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: Part 330--Stored Value Cards

Dear Mr. Feldman:

KeyBank NA (“KeyBank”) is pleased to provide the Federal Deposit Insurance Corporation (the “FDIC”) with comments to the proposed regulation (the “Proposal”) to amend part 330 – Stored Value Cards our comments are set forth below.

Cleveland-based KeyCorp is one of the nation's largest bank-based financial services companies, with assets of approximately $89 billion. Key companies provide investment management, retail and commercial banking, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. The company's businesses deliver their products and services through branches and offices and a network of approximately 2,200 ATMs. KeyBank is a significant issuer of stored valued cards (“Cards”) branded with a MasterCard service mark. Today, KeyBank issues cards that may be called, award cards, loyalty cards, promotional cards, incentive cards, gift cards, general spend cards, single value or reloadable cards, employer benefit plan cards; healthcare savings account cards, payroll cards, and governmental agency benefit cards. Many of these Cards are promoted by third party marketers that have developed their own unique card programs in order to compete in the national marketplace. In most cases KeyBank uses the “Bank Primary-Reserve System” for card settlement purposes, but relies on data processing services of vendors for the third party promoters in order to manage card account numbers, available card balances, and requests for authorization of card transactions.

KeyBank urges the FDIC to move with caution here for many of the reasons stated in comments on the FDIC’s First Proposed Rule, which we believe remain as valid comments, in order to avoid inhibiting the growth and development of new uses for the Cards.

KeyBank respectively disagrees with the FDIC’s interpretation that use of the Cards, and retention and use by an FDIC insured depositary financial institution (“Bank”) of funds, constitute a special purpose under paragraph 3(l)(3). Funding for a Card may arise from different sources and for different purposes. In addition, a single Card may contain more than one type of Card related product or function in order to avoid the cost of issuance of multiple single purpose Cards.

Comment is requested as to whether the FDIC should adopt a regulation that treats the funds underlying stored value cards and other nontraditional access mechanisms as ``deposits'' provided that the funds have been placed at an insured depository institution. If the FDIC elects to treat Cards as access devices to deposits, we believe the correct approach is to treat the funds as ``non-deposits'' in those cases (if any) in which a Bank sells stored value cards to cardholders, either directly or indirectly via third party promoters, without a Bank keeping any information as to the identities of the cardholders.

Although we maintain records of the purchaser of the stored value gift cards sold via the KeyBank branch banking centers, the Cards, by nature, are readily transferable as cash, and the identity of the cardholder after transfer is not communicated to KeyBank. Therefore consideration should be given to expanding the alternative approach to deal with all stored value relationships. Further the definition of ‘owner’ needs to be more clearly explained to deal with the transient nature and ownership of the Card and owner base. In this regard KeyBank supports an exception for an anonymous card, because the holders of these Cards do in fact treat the Cards as a cash equivalent.

Comments are requested as to whether the FDIC should recognize a distinction between the funds underlying payroll cards and the funds underlying gift cards. If the gift cards have been issued by the bank itself and not issued by or through a retail store or other sponsoring company, one possibility might be to create a ``de minimis'' rule. For example, the FDIC could create a rule providing that the funds underlying cards with small balances (e.g., up to $500) are not ``deposits.'' KeyBank supports the concept of the “de minimis” rule for cards with small balances, the suggested $100 threshold, however may not be sufficient. It is our experience that the average card value is $250 or less and the vast majority of cards have the balances depleted within the first 120 days of issue. A $500 to $1000 threshold would be more appropriate in our view.

In addition the reference to ‘not issued by or through’ a retailer should be eliminated as it only adds confusion.

Another question is whether a brief disclosure should be printed on the stored value card itself or whether a more substantive disclosure that clearly explains the scope of federal insurance coverage should be provided at the time that the card is issued. Possibly, the card could refer the consumer to a source of additional information about the insured status of the consumer's funds. An additional question is whether the name of the depository institution that holds the underlying funds should be printed on the card. KeyBank believes that the card is not the appropriate vehicle to display all disclosures. More traditional mechanisms, such as websites, and toll free numbers are better suited. Pursuant to national card payment network rules, such as MasterCard, KeyBank routinely lists its name on the reverse side of each Card issued, directly or indirectly by KeyBank. Most cards are issued with substantial terms and conditions (a “Cardholder Agreement”) delivered with a Card. Today, these Cardholder Agreements often contain detailed disclosures on the use of a Card and the related card balance, including whether or not the Card Balance is treated as an FDIC insured deposit.

KeyBank believes that open market competition is important for this product’s development, which will benefit the general public. We are concerned that FDIC regulations will retard and inhibit this growth. We recommend that the FDIC follow the FRB approach in its revised proposed amendment to Regulation E by the FDIC limiting any revised regulations to payroll cards only.

KeyBank appreciates the opportunity to comment on these important changes to the FDIC regulations. We are happy to provide additional information if requested.

Sincerely,

Carl Stauffeneger
Senior Vice President
KeyBank NA

Sarah E. Grotta
Senior Vice President
KeyBank NA