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FDIC Federal Register Citations


July 15, 2004


Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: Comments/Legal ESS

Re: Definition of “Deposit”; Stored Value Cards 12 CFR Part 303 RIN 3064-AC80

Dear Mr. Feldman:

Please accept this letter as comments on behalf of AmSouth Bank and its affiliates in response to the notice of proposed rulemaking published by the Federal Deposit Insurance Corporation on April 16, 2004, to clarify when funds at insured depository institutions underlying stored value cards will constitute “deposits” under the Federal Deposit Insurance Act. We appreciate the opportunity to comment on this important proposal, and we appreciate your consideration of our comments.

Under the proposal, funds underlying stored value cards issued by a financial institution would constitute deposits unless the institution:

1. Records its liabilities for such funds in an account representing multiple cardholders and

2. Does not maintain supplemental records or subaccounts reflecting the amount owed to each cardholder.

Under these proposed requirements, the only time such funds would not be deposits is when the institution has no records of the amount of available funds on each card. The proposal does not focus on the type of stored value card involved, such as gift cards, payroll cards, rewards cards or some new, innovative combination of those or other types of cards. As a result, the proposal would apply to any and all types of stored value cards.

By so narrowly limiting the focus of the determination of whether or not the funds underlying a Stored Value Card are a deposit to the mechanics of how an institution maintains its records, the proposal fails to consider policy issues that may arise in connection with various types of stored value cards. We believe the proposal should focus on the type of card involved and the underlying policy issues applicable to that type of card to determine whether certain products should be characterized as deposits. The proposal should not focus solely on the mechanics of how an institution records the liabilities on its books.

Take, as an example, the policy issues relating to deposit insurance coverage. The purpose of deposit insurance is to maintain confidence in and the security of the banking system. While some stored value cards may have some characteristics that would merit treating such cards as deposits, other stored value cards are more in the nature of pure payment vehicles that substitute for cash and would not merit treatment as a deposit. Other policy issues should be considered as well. The characterization of stored value cards as deposits could ultimately result in unintended consequences with respect to reserve requirements, money laundering, electronic fund transfer rules, state escheat laws and possibly others.

For example, gift cards are analogous in many ways to paper gift certificates. Gift cards are typically considered the same as cash. If a gift card is lost, there is no expectation that it will be replaced. Identifying information is not generally required when purchasing a gift card, whether buying it from a retailer or a bank. A gift card may be given to an individual completely unknown to the card issuer. Accordingly, this type of product may not warrant treatment as a deposit under the FDIA, the consumer protections provided by Regulation E, or obtaining customer identification information.

We urge the FDIC to delay implementation of the proposal until it can conduct a comprehensive study of the market for stored value cards and the proposal’s implications on public policy and other regulatory issues, as well as competitive implications of the proposal. Thank you again for the opportunity to comment on the proposal.

Very truly yours,

A. Lee Hardegree
Assistant General Counsel

Last Updated 07/19/2004

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