CREDIT UNION NATIONAL ASSOCIATION
July 15, 2004
Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20429
Dear Mr. Feldman:
The Credit Union National
Association (CUNA) appreciates the opportunity to respond to the Federal
Deposit
Insurance Corporation’s (“FDIC”)
proposed rule (“Proposed Rule”) that would clarify whether
the funds held at insured banks for stored value cards actually qualify
as “deposits.” Defining a stored value fund, as a deposit,
of course affects whether or not the product would receive insurance protection
under the Federal Deposit Insurance Act. Although this proposal only reflects
the rules for banks and bank insurance coverage, it could eventually have
an impact on credit unions for two reasons: credit unions can offer stored
value cards and financial regulators sometimes seek parity among their
insurance rules. As a result, this proposal could set a precedent that
may affect the National Credit Union Administration and influence its rules
regarding the National Credit Union Share Insurance Fund. The implications
of this proposal on the credit union movement have persuaded CUNA to respond.
CUNA, a national trade association, represents approximately 90 percent
of the nation’s 9,400 state and federal credit unions.
Summary of
CUNA’s
Position
CUNA opposes this proposal for the following reasons:
• This proposal does
not address or disclose the legal implications on stored value products
of making them deposits for purposes of several
other banking
laws, including Regulation D and Regulation E.
• The FDIC
should study the implications of classifying stored value cards as
deposits
and either
include these important considerations in
a new proposal that undergoes public comment or decide to withhold
premature regulation of stored value cards altogether.
• For all the
reasons above, the FDIC proposal to require banks to provide consumer
disclosures
regarding whether certain stored value
cards qualify for insurance is premature.
Discussion
This proposed rule would clarify the meaning of the term “deposit” as
that term relates to the funds at insured banks that underlie stored value
cards. Under the proposed regulation, the funds would be “deposits” unless
(1) the bank itself has issued the cards against a pooled “reserve
account” representing multiple cardholders; and (2) the bank maintains
no supplemental records or sub-accounts reflecting the amount owed to each
cardholder. In other words, the funds underlying stored value cards are
deposits as long as they are received by a bank that can track the funds
to individual cardholders using a sub-account system. The proposal also
requests comments on whether a rule ought to mandate that financial institutions
disclose to customers the insured or non-insured status of the stored value
cards that they offer to the public.
The FDIC admits that
the proposal as drafted does not consider the numerous legal implications
that arise
when stored value cards are classified as
deposits. According to the FDIC, “There are a number of issues not
addressed in this proposed rulemaking. . . such issues include, but are
not limited to systemic risk, security, electronic fund transfer matters,
reserve requirements, counterfeiting, monetary policy and money laundering.”1 If
the FDIC wants to present a proposal with such far ranging issues, then
it should wait to do so until after it has studied the implications of
those issues on the banking system and presents such information in a proposal
presented to the public for comment
In particular, the
FDIC does not address the legal implications for making stored value
cards deposit
products under Regulation D. For example, Regulation
D requires financial institutions to maintain reserves against transactions
accounts, which are defined by Regulation D to mean “a deposit or
account from which the depositor or account holder is permitted to make
transfers or
withdrawals . . .” 2 Thus classifying a stored value card
as a deposit account could mean that a financial institution has to maintain
reserves against that account for up to 10 percent of the account, depending
on the institution’s amount of net transaction accounts. This result
could dramatically affect banks, yet the FDIC provides no guidance on whether
a stored value card could be a transaction account. Consequently, CUNA
opposes the proposal because this omission creates uncertainty for financial
institutions.
The FDIC also has not
studied how the proposal affects the treatment of stored value cards
under Regulation
E, which establishes the requirements
for electronic fund transfers from a consumer’s account. Regulation
E defines account to mean a “demand deposit (checking), savings,
or other consumer account held directly or indirectly by a financial institution.”3 As
a result, classifying a stored value card as a deposit account could trigger
Regulation E and affect the disclosure requirements, periodic statement
requirements, and error resolution requirements for stored value cards
among other things. CUNA opposes this proposal because whether a stored
value card is a Regulation E consumer account, is not addressed in this
proposal and this omission creates uncertainty for financial institutions.
As the Federal Reserve Board oversees Regulation D and Regulation E, the
FDIC should work with the Federal Reserve to decide whether or not a comprehensive
proposal regarding the treatment of stored value cards is advisable. The
FDIC could follow the lead of the Federal Reserve Board, which has declined
to issue a final regulation on the treatment of stored value cards under
Regulation E.
For all the reasons stated above, an FDIC proposal that might require
banks to provide consumer disclosures regarding whether certain stored
value cards qualify for insurance is premature, and should be shelved and
considered within the context of another, more thorough proposal that discusses
the far-reaching implications of treated stored value cards as deposit
accounts.
Conclusion
CUNA opposes this proposal because it does not consider the far-reaching
policy and legal implications of classifying stored value cards as deposit
accounts. If you have any
further questions, please contact CUNA's Senior Vice President and Associate
General Counsel Mary Dunn or me at (202) 638-5777.
Sincerely,
Michelle Profit
Michelle Q. Profit
Assistant General Counsel
________________________________
1 69 Federal Register 20,559 (April 21, 2004).
2 12 CFR 204.2 (e)
3 12 CFR 205.2 (b) (1)
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