First National Bank of Omaha
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: RIN No. 3064-AC80
Re: Proposed Rule on Determining When Funds Underlying Stored Value Cards Qualify as “Deposits”
Mr. Feldman:
This comment letter is submitted on behalf of First National Bank of Omaha in response to the notice of proposed rulemaking (“Proposed Rule”) and request for public comment by the Federal Deposit Insurance Corporation published in the Federal Register on April 16, 2004. The Proposed Rule would replace General Counsel Opinion No.8 (“GC8”) in light of the new and innovative types of stored value card systems developed by the banking industry and would provide guidance to the industry and public as to when funds underlying stored value cards satisfy the definition of “deposit” at section 3(l) of the Federal Deposit Insurance Act. In part, First National Bank of Omaha supports the FDIC Proposed Rule and appreciates the opportunity to comment on this important topic; however, material weaknesses do exist that need to be addressed to ensure continuity through implementation. General Counsel Opinion No. 8 sets forth the structure and guidance for determining whether and under what circumstances funds underlying stored value products qualify as deposits.1 GC8 described several types of stored value products offered by First National Bank of Omaha. Our products fall into the category of “Bank Primary – Reserve System”. The monetary value is downloaded onto the card and funds are retained in a general liability account held at our institution to pay merchants and other payees. The opinion concluded that these funds were not deposits because they are not held for one or more specific transactions.2 Under the Proposed Rule, “funds received by an insured depository institution from cardholders, or funds received from others on behalf of cardholders or for payment to cardholders” in exchange for a stored value card, would constitute deposits, unless liabilities for such funds are maintained in an account for multiple cardholders and we do not maintain “supplemental records or sub accounts reflecting the amount owed to each cardholder.” 3 This definition generally contradicts the core understanding of GC8. In spite of industry product development and innovation based on consumer demand, the Proposed Rule does not provide guidance on the applicability to the various types of new and existing stored value cards, such as payroll cards and gift cards respectively. Instead, it merely states whether there is the maintenance of an account for multiple cardholders with no sub account activity ledger in order to determine deposit coverage. First National Bank of Omaha believes this proposal to be too vague, unsound and does not consider the policy issues pertaining to core stored value card products. Therefore, we recommend not implementing a final rule until a comprehensive study of stored value cards can be completed by the Federal Deposit Insurance Corporation. The study should at a minimum focus on the Proposed Rule’s implications on other regulatory issues, current product strategies for developing and managing stored value cards in compliance with GC8, and the benefits to consumers. The many types of stored value cards, such as gift cards, payroll cards, and relocation cards should be uniquely addressed in the Proposed Rule to ensure consistent and meaningful applicability. Based on the results of the comprehensive study, a revised Notice of Proposed Rulemaking may be issued that takes into consideration the various stored value card systems potential deposit insurance coverage. Proposed Rule Could Affect Other Regulations The Proposed Rule may impact other disclosure regulations due to the broad qualifying determination of deposit insurance coverage. The applicability of other regulations as they pertain to stored value cards is not clear. Based on the type of product the applicability may differ significantly. Regulation E Disclosure Requirements The Electronic Funds Transfers Act, implemented by Regulation E, sets forth requirements by for First National Bank of Omaha for electronic fund transfers to or from a consumer asset account. Such requirements include initial disclosures, periodic statements, liability for error resolution and liability for unauthorized transfers. The applicability of these requirements to stored value card products is not clear. Under Regulation E, the definition of “account” refers to a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes. Based on the existing Proposed Rule and the FDIC’s classification of funds in such stored value card systems as “deposits”, the federal banking agencies may classify certain stored value cards as consumer asset accounts under Regulation E. The implementation of such regulatory requirements for stored value cards would be cost prohibitive, difficult to administer and create consumer confusion. First National Bank of Omaha recommends that the FDIC should not seek a final rule until a comprehensive study has been completed outlining the Regulation E implications. USA Patriot Act Customer Identification Requirements Section 326 of the USA Patriot Act, requires First National Bank of Omaha to implement a Customer Identification Program (“CIP”) that provides for the gathering of specific customer information, implementation of risk based account opening procedures, through both documentary and non-documentary methods, in order to verify the identity of each customer and retention of such documentation for a specified timeframe. Specifically, a customer’s name, physical address, date of birth and taxpayer identification number are obtained. It may be appropriate to consider certain types of stored value cards as an “account” under Section 326. For example, if a card is issued to a customer, and the customer can add value to the card and use the card at ATM machines, or at merchants that accept credit cards, then the product has the characteristics of an account and should be treated as an account. Conversely, many stored value cards are the basic equivalent of cash and to treat the holder as a customer for Section 326 purposes makes no sense. For example, banks issue payroll cards to employees of a company who is a customer of the bank. The issuing company is the bank’s customer under Section 326. They payroll recipients are not customers of the bank. The reason for this is that the stored value card (the payroll card) is given to the customer to transfer value from the company to the employee. The alternative to using a card is to have the employer issue a check drawn on the bank to the employee, or perhaps simply to provide cash (withdrawn from the bank) to the employee. To advance an argument that the recipient of the payroll card is a customer, without also concluding that the person who receives a check drawn on the bank is a customer is, simply not logical. Similar to payroll cards, other forms of cards are simply a means of converting paper or cash based payment to more a convenient, safe electronic vehicle. Banks offer the service to business customers to provide them the means of providing a convenient and safe means to provide dollar value to the consumer. If we were required to obtain, verify and retain identity information on each person who received a stored value card: • The cost of issuance would rise making the product in practical
• The consumer would not want to provide the information simply to purchase a gift card First National Bank of Omaha recommends that the FDIC should not seek a final rule until a comprehensive study has been completed outlining the USA Patriot Act Customer Identification Program implications. Mandating Disclosures is not Necessary The Proposed Rule requests comments regarding the necessity to mandate clear and conspicuous disclosures for stored value cards. Proposed disclosures may include disclosures for the stored value card itself and of the insured or non-insured status of the stored value card in spite of any need from consumers of such disclosures. First National Bank of Omaha has issued numerous consumer and corporate stored value cards and in a review of our written complaints, there has not been a complaint regarding a lack of disclosure pertaining to the use of a card or deposit insurance coverage. First National Bank of Omaha does not support additional disclosures with little or no supporting evidence that additional disclosures are warranted. In addition, the FDIC provided disclosure guidance in 1997 for stored value card and this guidance remains in effect. This guidance is independently used in the development of such stored value cards. To mandate additional disclosure requirements would be cost prohibitive, difficult to administer and create consumer confusion. First National Bank of Omaha appreciates the opportunity to comment on this important topic. If you have any questions concerning these comments, or if we may otherwise be of assistance in connection with this matter, please do not hesitate to contact Eric Durham, Director of Corporate Compliance at 402-636-6647. Sincerely,
Eric Durham
Director, First National Compliance
First National Bank of Omaha
______________________________
1 69 Fed. Reg. 40,490 (Aug. 2, 1996).
2 Id. at 40,494.
3 69 Fed. Reg. 20,565 (Apr. 16, 2004).
| 
