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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