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ELECTRONIC FUNDS TRANSFER ASSOCIATION
July 27, 2004
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th
Street, NW
Washington, DC 20429
ATTN: Comments/ Legal ESS
Re: FIL-44-2004:
Proposed Rule on Determining When Funds Underlying Stored Value
Cards Qualify as "Deposits"
Dear Mr. Feldman:
This comment letter is submitted on behalf of the Electronic Funds
Transfer Association (EFTA) in response to the request for comment
recently issued by the Federal Deposit Insurance Corporation (FDIC)
on a proposed rule to clarify when funds underlying stored value
cards qualify as "deposits" for purposes of deposit insurance.
EFTA is the nation's leading non-profit, inter-industry trade association
dedicated to the advancement of electronic payment systems and electronic
commerce. The Association's nearly 900 members represent a broad
spectrum of perspectives that engender accurate and effective analysis
of electronic payments and electronic commerce issues. Members include
the nation's leading financial institutions, electronic payment networks,
card associations, retailers, information processors, equipment,
card and software manufactures and vendors, Internet providers, telecommunications
companies, state governments and Federal agencies. A list of EFTA
Board Members is attached. Please note that none of the governmental
members of EFTA were involved in the development of this comment
letter.
EFTA supports adoption of a rule that will clarify deposit insurance
coverage of funds related to prepaid, payroll, gift and stored value
cards (collectively, in this letter, prepaid cards) because such
clarification will enable our members to introduce new programs that
will better serve their constituencies. As the electronic revolution
unfolds, the explosion of prepaid cards is considerably altering
the nature of consumer payments. To your agency's credit, the FDIC
has been acutely aware of such changes and consciously dedicated
to studying the effects of technological advances on the financial
community. We believe that your patience in allowing the prepaid
card industry to expand and grow, without extensive regulation, was
an integral factor to its swift development.
Because prepaid cards are becoming more and more commonplace, a need
to refine the pertinent issues surrounding them presently
exists. We therefore support rulemaking efforts to clarify the meaning
of "deposit" as it relates to the insurance of funds held
by depository institutions. We are not, however, able to support
the proposal in its current form.
We have the following specific comments about the proposal:
Need
for Agency Coordination in
Rulemaking
A major concern of EFTA's members is the need for greater uniformity
and collaboration among government agencies with jurisdiction to
regulate prepaid cards. The FDIC's proposal is merely one of the
building blocks in the regulatory structure that will inevitably
surround the prepaid card industry. The Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency
(which has already weighed in on the subject of payroll cards), FINCen,
the Office of Foreign Asset Controls, the Federal Trade Commission
and the other bank regulatory agencies all have an interest in the
development and regulation of prepaid cards. Our members are deeply
concerned that the development of prepaid card programs will be hampered
by piecemeal regulation that is counter-productive, costly, and confusing.
Regulations adopted by the FDIC relating to insurable deposits will
inevitably have an effect on the regulatory action of other agencies,
such as the Federal Reserve Board. We urge the FDIC to work together
with its sister agencies on a coordinated basis when promulgating
rules affecting prepaid cards. A coordinated study of prepaid card
applications and the consequences of regulatory action should be
undertaken prior to adoption of rules by the FDIC or any other agency.
Repeal of General Counsel's Opinion Number 8
While we acknowledge that the proposed rule seeks to replace General
Counsel's Opinion Number 8 (the Opinion), we respectfully request
that the FDIC repeal the Opinion when it promulgates any prepaid
card regulation. The analysis in .the Opinion, while useful at the
time it was issued, is now outdated and will only serve as a source
of confusion to the industry if left in place. The issues addressed
in the Opinion can be more simply and easily addressed in the final
rule.
Replacement
of Term "Stored Value Card"
We request that
the FDIC consider replacing the term "stored
value card" with more precise and commonly-used terms. The term "prepaid
card" is more commonly used in the industry, and provides less
opportunity for confusion among consumers and affected industries.
If the FDIC wants to use a single term to generally describe the
cards used for stored value-like applications, we suggest that the
term "prepaid card" be used. In addition, we urge the FDIC
to differentiate among the different types of prepaid cards and to
describe them in simpler and more universal terms when addressing
the issue of whether funds underlying them constitute deposits for
purposes of federal deposit insurance. For example, we suggest that the rules should differentiate
among some or all of the following: single merchant gift cards (e.g.,
a Starbucks card); multiple merchant gift cards (e.g., a mall card);
branded prepaid cards (e.g., a VISA or MasterCard-branded card) that
can be used wherever branded cards are accepted; closed-system prepaid
cards (e.g., college or university cards); payroll cards (e.g., card
used by employers to pay employees wages).
Need to Clarify the Meaning of Deposit
While we support
in principle the FDIC's proposal to adopt a new section of part
303 to clarify the meaning of "deposit" as
it relates to funds at insured depository institutions underlying
prepaid cards, we suggest that the rule be more specific and clear
about what is and what is not covered under the deposit definition.
A list as to what is explicitly encompassed in the definition would
ameliorate the confusion as to exactly what is subject to the regulatory
scheme.
We strongly urge the FDIC to reconsider the basic premise of the
proposed rule that funds underlying prepaid cards are deposits, depending
on the record-keeping associated with the cards. Consumer and industry
expectations regarding prepaid cards vary from product to product
and the insurability of the funds underlying such cards should be
based on policy considerations regarding their use, rather than a
mechanistic formula that does not address consumer needs or industry
practice. Merchants, processors, and financial institutions can accurately
identify the value on a prepaid card at any time regardless of the
form or style of record keeping.
For example,
the FDIC should specifically address payroll cards in any final
rule and provide that the funds underlying
such cards
be considered deposits that are eligible for "pass-through" insurance.
There should also be a requirement that adequate records be kept
to ensure that consumer funds are safeguarded. Payroll cards should
be insurable to the individual, as these are analogous to cash and
represent the money that employees have themselves earned.
On the other hand, consumers have very different expectations and
experience with gift cards, which are cash substitutes and viewed
as such by consumers. There is no logical policy or consumer protection
basis for treating funds underlying such cards as deposits.
Disclosure Requirements
We do not support
the adoption of specific disclosure requirements relating to the
insured status of prepaid card funds
at this time.
There does not appear to be a consumer problem that would justify
such disclosures. If a disclosure rule is adopted, disclosure should
(a) be mandatory only if a deposit is FDIC insured, (b) not be adopted
until clarity is reached on what exactly qualifies as a "deposit," and
(c) be capable of being produced in a very abbreviated fashion. Certainly
no other disclosures should be mandated by the FDIC, especially given the Federal Reserve Board's jurisdiction regarding
the Electronic Fund Transfer Act and Regulation E.
We appreciate
the opportunity to comment on the proposed rulemaking. We believe
that a straightforward, clear, and concise
definition
of "deposit" represents an important step in the furtherance
of technological advances in e-commerce and the delivery of financial
products to consumers, but urge the FDIC to address the serious policy
considerations in a new proposal before final adoption of regulations
and to coordinate any actions with other concerned agencies.
Sincerely
H. Kurt Helwig
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