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).
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