4000 - Advisory Opinions
Insurance Coverage on Deposits of Court-Ordered Support Payments Held by a Public Unit
July 31, 1991
J. William Via, Jr. Counsel
This is in response to your letter of July 9 inquiring, in effect, about the requirements for "pass-through", or pro rata, insurance coverage for deposits of funds held by a public unit that consist of court-ordered support payments.
Fundamentally, when a deposit is placed in an insured institution by a person, or by a legal entity such as a corporation, acting in a fiduciary (or representative) capacity, the deposit account records of the institution "must expressly disclose, by way of specific references," the existence of that fiduciary relationship (such as "trustee, agent, nominee, guardian, executor, or custodian"), otherwise no claim for "pass-through" insurance coverage based on such relationship will be recognized by the FDIC. See 12 CFR § 330.4(b)(1). In particular, the deposit account records should list the name of the account holder, which should be followed by a specific modifying term that reveals the fiduciary capacity (such as agent, custodian, etc.).
Assuming that the deposit account records duly disclose the existence of a fiduciary relationship, the second basic requirement is that the details of the relationship and the ownership interests of others in the account be ascertainable either from the deposit account records of the insured institution or from records maintained, in good faith and in the regular course of business, by the depositor (or by some authorized third party). See 12 CFR § 330.4(b)(2). When these requirements are met, then each beneficial owner will be recognized for deposit insurance purposes as if he or she had made a deposit in his or her own name. See 12 CFR § 330.6(a). Thus, assuming that these are "single ownership accounts'' (see 12 CFR § 330.5) and are the only such accounts owned by the beneficial owners in the institution, then the deposit would be insured up to $100,000 per beneficial owner. Assuming that a support payment, when made by the obligor, is thereupon owned by the obligee, the funds on deposit would be insured on that basis.
An insolvent insured depository institution may be acquired through a merger, or similar transaction, by a healthy institution, which assumes all its deposits, with no interruption in banking service for the former customers of the insolvent institution. When such a transaction is not available and it is necessary to liquidate the failed institution, payment of the insured deposits is required by statute to be made "as soon as possible" (per 12 U.S.C. § 1821(f)). The payment process is begun the next business day following the closing of the failed institution and ordinarily requires a few days.
If the public unit has issued checks for support payments that remain outstanding when the drawee institution is closed, the checks will not be paid. If, however, the closed institution has become obligated for the payment of checks forwarded for collection by a depository institution acting as agent, the holders of such checks will be recognized as deposit holders in the closed institution. See 12 CFR § 330.4(b)(4)(ii).
I trust that this response meets your needs, but if questions remain you can reach me at (202) 898-3733.