PNC Bank
August 6, 2004 Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW.
Washington, DC 20429. Attention: Comments/Legal ESS Re: Notice of Proposed Rulemaking Concerning Definition of Deposits; Stored Value Cards:
RIN 3064–AC80 Dear Mr. Feldman: PNC Bank, National Association (“PNC Bank”), Pittsburgh, Pennsylvania, wishes to take this opportunity to comment on the notice of proposed rulemaking (“Proposal”) of the Federal Deposit Insurance Corporation (“Corporation”) regarding the meaning of ‘‘deposit,’’ as that term relates to funds at insured depository institutions underlying stored value cards (69 Fed. Reg. 20558 (April 16, 2004)). PNC Bank’s parent holding company, The PNC Financial Services Group, Inc. (“PNC”), Pittsburgh, Pennsylvania, is one of the largest diversified financial organizations in the United States, with $74.1 billion in total assets as of March 31, 2004. Its major businesses include community banking, corporate banking, real estate finance, asset-based lending, wealth management, and global fund processing services. PNC Bank has branches in Florida, Indiana, Kentucky, New Jersey, Ohio, and Pennsylvania. As a general matter, PNC Bank supports the concept of the FDIC issuing regulations clarifying whether certain funds underlying stored value cards should fall within the definition of “deposits” for purposes of the Federal Deposit Insurance Act (FDI Act”). PNC Bank encourages the FDIC, however, to define the deposits as narrowly as possible in view of the extensive implications that could arise from such determination. For instance, Regulation E and the Patriot Act immediately come to mind as federal regulatory schemes that could be made applicable to stored value cards in circumstances that are inappropriate, such as in the sale of non-reloadable gift cards. PNC Bank respectfully requests, therefore, that in considering this matter the FDIC carefully consider the potential regulatory burden on financial institutions that could result from a determination that funds underlying certain stored value card products are deemed to be “deposits” for purposes of the FDI Act. PNC Bank is responding below to the specific questions set forth in the proposal for comment. 1. Should the FDIC promulgate a new section to part 303 to clarify the meaning of “deposit” as that term relates to funds at insured depository institutions underlying stored value cards? Financial institutions are rapidly developing new products that both meet the needs and
demands of the commercial sector of the economy and are also user friendly for consumers. These developments are occurring rapidly, and the resulting new products are proliferating and becoming more widely accepted. Because consumers use many of these products, issuers of the products have concerns regarding how their products are viewed by the regulators and, as a result, what their disclosure obligations may be. The promulgation of a regulation to clarify the meaning of deposit would assist issuers of stored value cards in determining what regulatory scheme, if any, is applicable to their product. This determination affects the provisions in agreements with commercial clients, consumer disclosures, product design and training procedures for internal operations staff having responsibility for the stored value products. The issuance of a regulation would address the uncertainty on this topic today, as well as assist issuers and third parties in determining their obligations with respect to the cards. 2. If so, should the FDIC adopt the proposed rule? Why? The FDIC should not adopt the proposed rule in its current form. The proposed rule requires modifications to reflect the current state of stored value cards in the United States as well as to provide flexibility for the development of new products. For example, the current definition assumes that cards must be used at a merchant in order for the cardholder to obtain the value on the card. In fact, many products today (e.g., payroll cards) can be used at an ATM or presented to a bank teller to receive cash. In addition, institutions need the ability to have varying features on their products, such as the use of access devices that are not cards. 3. In the alternative, should the FDIC adopt some other rule? Under what circumstances should funds received by an insured depository institution not be insurable as “deposits”? The FDIC should adopt a modified rule as recommended in this comment. Funds underlying a stored value card should not be insurable as “deposits” where (i) they are received by an institution for a short time ( e.g., 24 to 48 hours) before becoming the property of the cardholder, such that the depository institution no longer has an obligation to pay such amount; (ii) they can be used only with a single merchant; or (iii) the funds are held in a general ledger account at the financial institution without subaccounting on the records for individual cardholders. 4. What should be the treatment of funds underlying “payroll cards”? Payroll cards are generally reloadable. Funds underlying payroll cards, to the extent that the funds are held at a depository institution, should be insurable because they constitute a significant consumer asset necessary for the consumer’s subsistence (e.g., shelter, food, clothing), which the FDI Act seeks to protect. If the funds are held by the depository institution in the name of the employer, insurance should be applicable to the employer’s interest in the funds. If the financial institution maintains a subaccounting for the employees who receive the credits to the payroll cards, or if the employer maintains records that satisfy the pass through coverage requirements of 12 C.F.R. 330.7(a), then the insurance coverage can “pass through” to the employees’ benefit. 5. Will the proposed rule affect the operation of deposit limitations in Section 3(d) of the Bank Holding Company Act or Section 44(b) of the FDI Act? No comment. 6. Should the FDIC adopt the proposed definition of “stored value card”? Can this definition be improved? What are the differences (if any) between “stored value cards” and other types of bank cards such as “prepaid cards”, “debit cards”, “check cards” and “payroll cards”? a. The FDIC should not adopt the proposed definition of a stored value card. The definition (i) is not reflective of the current state of stored value cards as contemplated by this rule (see the response above to question two) and (ii) is not flexible enough to reflect changes in technology. Thus, any variation on the product in the future would subject card issuers and the depository institutions to the same legal uncertainty as exists in the marketplace today. The definition should be expanded to include devices that can be used at ATMs and for cash advances, as well as cardless devices. The definition should exclude debit and check cards. b. Stored value cards and prepaid cards differ from debit cards, check cards and payroll cards in the way they are funded and the manner in which they can be used. Stored value cards and prepaid cards are the same. These cards are purchased and are not attached to the purchaser’s bank deposit account. These cards are freely transferable to third parties and are generally not reloadable. They cannot be used for cash advances or for ATM or PIN transactions. Debit and check cards are functionally different in that they (i) are tied to a cardholder’s bank deposit account; (ii) are not “loaded” with a value or purchase amount; (iii) access the available balance in a deposit account; and (iv) can be used for purchases, bill payment and cash advances. Payroll cards are funded by the account of the employer, not by an account owned by the employee. They can be issued by the employer through a financial institution. 7. Should the FDIC adopt specific disclosure requirements? If so, do the disclosures provided as examples in the preamble adequately address consumer confusion about the insurability of funds underlying stored value products? Are there ways to reduce the cost of burdens associated with providing disclosures about the insurability of such funds? The FDIC should adopt specific disclosure requirements. (i) The distinction between what is insured and what is uninsured in the consumer disclosures must be based upon determinations made by the FDIC. For stored value cards that would be covered by FDIC regulations (e.g., instance pay cards), the regulations should be similar to those that are applicable to Regulation E. If this approach is adopted, a single disclosure could be used for all electronic funds transfer devices, which would include information on insurance of underlying funds. Such an approach would impose a reduced regulatory burden on institutions.. (ii) Many issuers intend to, or do, provide disclosures with the gift cards that could include all of the information governing the card (e.g., lost or stolen card procedures). We oppose the use of a “Not FDIC Insured” logo or legend on gift cards. Purchasers of gift cards are primarily concerned with the replacement of gift cards that are lost or stolen while there is remaining value on the card. Insurability for gift card balances is less important, if of concern at all. The “Not FDIC Insured” logo could discourage use of the card. This would be a disservice to consumers in those instances in which consumer risk of loss due to theft is mitigated by a card issuer’s policy for replacing lost or stolen cards with the remaining value intact. 8. Should the FDIC adopt any special rules governing the insurance coverage of any “deposits” underlying stored value cards? Insurance coverage for deposits underlying stored value cards should apply to cards that are reloadable and where the funds are held at the depository institution in the name of the purchaser of the card. Gift cards should not be subject to insurance coverage in that these cards do not access a consumer deposit account and they are freely transferable, such that the identity of the ultimate recipient may be difficult if not impossible to determine. Certain cards used in the commercial setting, such as reimbursement cards and stipend cards, should not be considered deposits for the purpose of insuring the value on the card to the cardholder. The underlying value of such stored value cards is owned by the issuing company, generally the cardholders’ employer, for the card. The cardholder does not have any ownership interest in the funds. If these balances are insured, they should be insured in favor of the company that issues them and owns the underlying value. 9. Are insured depository institutions offering stored value products or systems that are not addressed in this notice of proposed rule making? Please explain. On behalf of corporate clients, depository institutions are issuing stored value products that are not material in nature (e.g., the products are not evidenced by a card or paper instrument). These products may be issued through a letter or an e-mail to the recipient, and the value is accessed through the use of an access code, which may be by telephone or computer. These products tend to be “closed loop” products, and should not be subject to insurance coverage. Nor should they be subject to disclosure so long as they are issued on behalf of the company that is making the underlying value available. Some issuers are also considering the introduction of “virtual cards,” and the value underlying these instruments should be excluded from definition of “deposits.” Conclusion The proposal states that its determination of whether funds underlying stored value cards are deposits could raise issues under other regulations, such as money laundering and electronic funds transfer rules. It should be noted that a primary rationale of deposit insurance policy is to provide confidence in the banking system. The other rules mentioned have very different policy considerations (e.g., criminal law enforcement and consumer protection.) In reaching its decision, the FDIC should make it clear that it is not intended to subject stored value products to other regulatory schemes. The other primary regulators must determine individually the applicability, if any, of its regulations to stored value cards (e.g., Department of the Treasury for money laundering). * * * Thank you for considering the views expressed in this letter. If you have any questions, please feel free to contact me. Sincerely yours,
James S. Keller
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