Association for Financial Professionals
July 15, 2004
Mr. Robert E. Feldman Re: 12 CFR Part 303 Dear Mr. Feldman: The Association for Financial Professionals (AFP) welcomes the opportunity to comment on the rule proposed by the Federal Deposit Insurance Corporation (FDIC) to clarify the meaning of “deposit” as that term relates to funds at insured depository institutions underlying stored value cards. AFP represents about 14,000 finance and treasury professionals who, on behalf of over 5,000 corporations and other organizations, are significant participants in the nation’s payments system. Organizations represented by its members are drawn generally from the Fortune 1,000 and the largest of the middle market companies. AFP members’ companies use stored value cards for a variety of purposes, most commonly for payroll and related functions such as bonuses, commissions and expense reimbursements. Payroll cards are a valuable corporate tool for migrating from check to electronic payments and achieving an all-electronic payroll. They have proven to be effective in reaching the unbanked and those who do not enroll in direct deposit of payroll. Many of AFP’s members play a significant role in implementing payroll cards at their companies. They thus have a sizeable stake in FDIC regulations governing payroll cards. AFP’s comment letter will address payroll cards, and will not deal with other types of stored value cards. AFP agrees with the general premise that the funds underlying payroll cards should be considered “deposits.” AFP’s comments will cover four related issues: Status of Dual-Branded Cards Definition of Stored Value Cards The funds underlying payroll cards are frequently accessible through automated teller machines (ATMs) operated by banks or third parties as well as at merchants’ point of sale terminals. Sometimes the funds are accessible only through ATMs. AFP recommends that the definition of stored value cards not be limited to those usable at a merchant’s point of sale terminal. The definition should be expanded to include those usable at a merchant’s point of sale terminal and at an ATM, as well as those usable at an ATM only. The proposed definition of stored value cards includes references to “merchant,” but it does not define that term. This leaves unanswered the question of whether the term covers sellers of services in addition to sellers of goods. Payroll cards may, in the future, be used to pay for a wide array of services, for example, medical services. The FDIC is advised to clarify and define the scope of the term, “merchant.” Disclosures about Insurability In the case of cards issued by sponsoring companies, the FDIC states that the company should not suggest that the holder will be protected by FDIC insurance. The proposed rule notes that in such cases the insured party may be the sponsoring company unless the requirements for pass-through insurance have been met. The FDIC requests comments as to whether any particular disclosures should be mandated. Payroll cards may be the first introduction to the financial system for employees who are unbanked and who may distrust financial institutions. When the regulatory requirements for pass-through insurance for cardholders have been met, statements as to the availability of federal deposit insurance may encourage acceptance. AFP believes it may be appropriate to mandate disclosure of FDIC coverage when the issuer is a financial institution, since such issuers, as FDIC members, have sufficient knowledge and expertise to determine the exact nature of the coverage. In the case of cards issued by sponsoring companies, however, disclosure should be permissive, but not mandatory. For example, in an effort to foster wider acceptance of payroll cards, an employer who is a “sponsoring company” under the FDIC’s proposed rule may work closely with a financial institution to achieve pass-through insurance coverage for cardholders. In such cases, it would be appropriate to allow the employer to make accurate disclosures about such coverage. On the other hand, when a sponsoring company is uncertain about the coverage, it would be appropriate to remain silent. In the proposed rule, the FDIC seems to imply that the sponsoring company should make no statement about FDIC coverage. However, companies that understand the regulations governing “deposits” and pass-through insurance should be able to make a statement regarding FDIC coverage. As noted by the FDIC, existing criminal law discourages sponsoring companies from making false representations about FDIC insurance coverage. Increasing numbers of consumers are receiving stored value cards for a growing number of applications. AFP understands that the federal government will be called upon to update consumer protection and anti-money laundering regulations to reflect the changed environment. The costs of complying with these regulations will undoubtedly be passed on by financial institutions to the companies issuing payroll cards and other types of stored value cards. AFP recommends that the level of regulation not be made so burdensome as to discourage companies from offering the cards to their employees. Summary of AFP Recommendations AFP thanks the FDIC for the opportunity to comment on its proposed rules for stored value cards. If you have any questions about this comment letter, please call Arlene Chapman of AFP at 301-961-8825. Sincerely, Alvin C. Rodack, CTP |
| Last Updated 07/19/2004 | regs@fdic.gov |