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State of Oregon, Division of Finance and Corporate Securities
MEMORANDUM DEPARTMENT OF CONSUMER AND BUSINESS SERVICES
DIVISION OF FINANCE AND CORPORATE SECURITIES
July 15, 2004
To: Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
From: Patricia A. Locnikar
Senior Policy Analyst
Subject: Stored Value Cards
I appreciate and welcome the opportunity to submit comments
concerning the FDIC’s proposed rulemaking clarifying the definition of “deposit” as
that term relates to funds underlying stored value cards. This agency
regulates depository and non-depository financial institutions in Oregon,
including state chartered banks and money transmitters, and thus takes
an interest in the regulation of stored value cards.
Definition
of stored value card The proposed definition
implies that the exclusive use of a stored value card is to transfer
funds to a merchant
at the merchant’s point of sale terminal. Stored value cards currently
offered in Oregon also enable the cardholder to obtain cash through ATM
facilities. I would suggest the definition be amended by inserting “to
withdraw cash through an ATM, or” immediately following “cardholder.”
Disclosure The preamble of this rulemaking notice suggests placing a
short statement on the card issued to the customer concerning whether
the underlying funds qualify as deposits for purposes of FDIC insurance.
Based on the way stored value cards are marketed or proposed to be marketed
in Oregon by out-of-state banks, a concise and accurate statement on
the card may be difficult.
The out-of-state banks use or propose to use retail stores
or short-term non-depository lenders as their agents to issue the stored
value cards.
However, to avoid having these agents regarded as deposit production
offices, as that term is described in 12 USC §1835a, the out-of-state
banks attempt to bifurcate the customer’s transaction, and claim
the retail store or short-term non-depository lender is the agent of
the customer for purposes of receiving and transmitting the underlying
funds.1 The out-of-state bank wants the underlying funds to be considered
as deposits only when the funds actually reach that bank. The disclosure
issue is complicated in these non-bank agent transactions and most likely
cannot be accomplished in a brief statement on the card itself.
However, clear and conspicuous disclosure to customers is absolutely
necessary. I urge the FDIC to expand the proposed regulation to require
that depository institutions issuing stored value cards conspicuously
disclose to the customer not only the insurability of the underlying
funds but also, if using a non-bank agent to issue the card, when the
insurance coverage commences.
Thank you for the opportunity to express our concerns. If there are
any questions, feel free to contact me directly at 503-947-7486 or by
e-mail: patricia.a.locnikar
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1 This
attempt to bifurcate the transaction elevates form over substance. In
addition to issuing the card with written materials from the bank, the
agent also electronically transmits to the bank or the bank’s processing
agent information about the customer sufficient to open a subaccount.
Making this third party an agent of the bank for purposes of submitting
information electronically, but an agent of the customer for purposes
of transferring funds electronically, is a clear attempt to circumvent
the prohibition on deposit production offices. In addition, at least
one of the cards offered in Oregon permit the cardholder to access the
underlying funds through an ATM immediately upon leaving the agent’s
premises, before the underlying funds are received by the out-of-state
bank.
This agency’s position that such an agent must become licensed as a money
transmitter would provide consumer protection for the handling of the customer’s
funds. However, I request that federal regulators promptly address this issue
of out-of-state banks generating deposits using non-bank agents in Oregon.
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