Skip Header

Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

Home > Regulation & Examinations > Laws & Regulations > FDIC Federal Register Citations

FDIC Federal Register Citations

State of Oregon, 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

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.


Last Updated 07/19/2004

Skip Footer back to content