BANK OF AMERICA, N.A.
July 12, 2004
Robert E. Feldman
Executive Secretary (Attn: Comments/Legal ESS)
Federal Deposit Insurance Corporation
550 17th Street, Northwest
Washington, D.C. 20429
Definition of “Deposit”;
Stored Value Cards
Dear Mr. Feldman:
Bank of America Corporation
(“Bank of America”) appreciates the
opportunity to comment on the proposed rule (the “Proposed Rule”) to clarify
the definition of “deposit” as it relates to funds at insured depository
institutions that underlie stored value cards. Bank of America is one of the
world’s leading financial services companies, and is the sole shareholder
of Bank of America, N.A., and Fleet National Bank. The two banks serve 33
million consumer relationships with 5,700 retail banking offices, more than
16,000 ATMs and online banking with more than ten million active users.
The Federal Deposit
Insurance Corporation (the “FDIC”) published the
Proposed Rule for comment on April 16, 2004. The Proposed Rule would add a
new section to part 303 of title 12 of the Code of Federal Regulations and
would supersede General Counsel’s Opinion No. 8.
A. General Comments.
We agree with the comment in the summary to the Proposed Rule that since
publication of General Counsel’s Opinion No. 8
the banking industry has develop new types of stored value card systems, and
as a result there is a need to provide new guidance as to when the
underlying funds will be a “deposit” for purposes of section 3(l) of the
Federal Deposit Insurance Act (the ”FDIA”). However, we believe that prior
to the adoption of any new rules, it is essential that the FDIC consider
two
fundamental concerns: the significant differences among the wide and growing
variety of stored value products; and the likely impact the Proposed Rule,
if adopted, would have on the application of other regulations on stored
value cards.
1. The variety of stored
value cards has grown tremendously in recent years. Stored value cards
now include such disparate products
as payroll
cards, gift cards, electronic benefit transfer cards, promotional and
incentive cards, and flexible health care spending cards. The list is
certain to grow as issuers and both commercial and consumer users seek to
achieve the convenience and cost reductions offered by stored value cards.
However, the Proposed Rule ignores this diversity of uses and asks only
if
funds are received by the depository institution in exchange for the stored
value cards and if the institution uses an accounting methodology to
track
the value with respect to each cardholder. This approach ignores the policy
implications of offering deposit insurance for different products. The
purpose of deposit insurance has been to protect the banking system from
runs on deposits while protecting depositors’ funds. While this may argue
for extending protection, and imposing the resultant costs, for some
stored
value products, such as pay roll cards, it does not seem to apply for other
products, such as gift cards and other single-purpose or limited use
cards.
We believe that looking
at just one type of stored value card will illustrate some of the difficulties
that will be created by
the approach
contained in the Proposed Rule. Bank of America currently sells gift cards
online. In this situation, we obtain the name and the address of the
purchaser. Since we track the balance on the individual cards, under the
Proposed Rule it would appear that the balance for each gift card is
a “deposit” for purposes of the FDIA. However, the bank also sells gift cards
through a number of affinity partners. These small value cards are sold in a
variety of locations, such as shopping malls, often for cash. For these
transactions, neither the bank nor the selling agent ever obtains the name
and address of the purchaser, and so the card would not be a “deposit” under
the Proposed Rule. This difference in treatment, completely unrelated to
the
characteristics of the product or the perception of the consumer, will
result in consumer confusion and additional costs to the bank as it must
create different disclosures showing that one card is FDIC insured and the
other is not, as well as administer separately.
2. Although on its
face the Proposed Rule appears to address the rather limited issue of
when funds underlying a stored value accounts
are “deposits” under the FDIA, as noted in footnote 4 of the Supplemental
Information, there are a number of other significant issues that could
be
effected by any adoption of the Proposed Rule. We believe the Proposed Rule
should not be adopted until the following issues are addressed through
coordinated rule-making by the relevant agencies. A failure to do so
will
cause significant regulatory uncertainty, and so risk, to any issuer of
stored value cards. This may in turn cause many regulated institutions to
avoid new product development, causing loss of opportunities as well
as less
protection to consumers as the void is filled by less regulated companies.
Regulation D Requirements—Reserve
Requirements of Depository Institutions
Regulation D establishes requirements for depository institutions to hold
reserves against transaction accounts that are held by banks on behalf of
their customers. To the extent that stored value cards give rise to insured
deposits, they are also likely to be viewed as transaction accounts. For
Bank of America and most other bank issuers, the marginal reserve
requirement would be 10%. This reserve requirement would affect the cost of
all covered stored value cards and would need to be reflected in the fees
charged to the users.
Regulation E Requirements—Electronic
Fund Transfer Disclosures and Other Requirements
Regulation E sets forth
the requirements for electronic fund transfers to or from a consumer
asset account, such as a deposit
account, at a financial
institution. The applicability of many Regulation E provisions, including
periodic statements, limited liability for unauthorized transactions
and
error resolution procedures, to stored value products is not clear. Section
205.2(b) (1) of Regulation E defines “account” as a “demand deposit
(checking), savings, or other consumer asset account. . .held directly or
indirectly by a financial institution and established primarily for personal
family, or household purposes.” The Federal Reserve Board (“FRB”) has
refrained from adopting final amendments to Regulation E to specifically
cover stored value products out of concern that too much regulation could
inhibit the development of these emerging products. If the Proposed Rule is
adopted, however, it is likely that the FDIC’s characterization of certain
stored value products as “deposits” would lead to an interpretation that
such deposits are consumer asset accounts under Regulation E. Given the
practical and economic obstacles of providing monthly statements for some
stored value products, such as gift cards, this could lead to the immediate
end of popular products within regulated financial institutions.
USA PATRIOT Act
Customer Identification Rules—Customer
Identification Programs
Financial institutions
are required to gather specified information about customers and to verify
the identity of customers.
In addition, financial
institutions must establish risk-based procedures for verifying the identity
of each customer to the extent reasonable and practicable. Also, a Customer
Identification Program (“CIP”) must have procedures in place for opening an
account that specify the identifying information that will be obtained from
each customer. Further, at a minimum a financial institution must obtain the
customer’s name, date of birth, address, and identification number. It is
simply not feasible for financial institutions to make CIP requirements for
the recipients of gift cards because they have no interaction with the
recipients other than perhaps the sending of the card. The FDIC should not
proceed with the Proposed Rule until it has determined, as part of its
comprehensive study, the resulting USA Patriot Act implications, if any,
of the Proposed Rule.
In light of the above concerns, we believe the FDIC should not adopt any
rule until it confers with the appropriate financial regulatory agencies.
This should lead to coordinated rule-making designed to provide certainty to
a growing product type rather than the piece-meal approach implicit in the
current proposal.
B. Responses to Specific Questions. The FDIC asked for comments on
the following questions:
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?
Although Bank of America
believes that a new rule is needed, as noted above we believe the current
approach is seriously flawed. New
regulations
should more carefully consider the functional features of various stored
value cards that support treatment as a “deposit” under the FDIA, and
should be adopted only after the FDIC has conferred with other financial
regulatory
agencies to assure more comprehensive regulation of stored value cards.
2. If so, should the FDIC adopt the Proposed Rule? Why?
Bank of America opposes the adoption of the Proposed Rule. Without
addressing the issues raised above, adoption of the Proposed Rule will
create unfair regulatory risk for financial institutions and burden
development of new uses for stored value 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”?
For the reasons discussed
above, the FDIC should issue a final rule only after thoroughly considering
the range of stored valued
products and
structuring the rule to recognize as “deposits” only those funds where
consistent with the underlying purposes of FDIC insurance. In addition, the
FDIC should work with the other financial regulatory agencies to assure more
comprehensive regulation of stored value cards.
4. What should be
the treatment of funds underlying “payroll cards”?
Payroll cards most
closely resemble other traditional deposit accounts. It assumes an ongoing
banking relationship with debits and
credits over an
extended period of time. We believe there are sound policy reasons to extend
the protection of FDIC insurance to the holders of these cards, who are
often poorer and less familiar with the banking system. However, even
here
the FDIC would need to be careful in attempting to define a “payroll” card.
We suggest that it should include only cards marketed with the assistance
of
the employer with the explicit intent that the card be used primarily as
a method of delivering payroll. The term should not include all cases in
which
payroll may be deposited onto the card, even if this was not the primary
purpose of the card. For example, any card that permits funding through
ACH
deposits could be easily used for direct payroll deposit without the
encouragement of the issuer.
5. Will the proposed rule affect the operation of the deposit
limitations in section 3(d) of the Bank Holding Company Act or section 44(b)
of the FDI Act?
Clearly there will be some impact, but until the Proposed Rule is better
refined we believe that it is premature to speculate. We also do not believe
this should be a material concern in adoption of the final rule.
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”?
The term “prepaid card” is used generically to describe various types of
cards in the marketplace with a value limited to the amounts placed on the
card. “Debit card” (or “check card”) describes a device used to access a
deposit account, but with no value directly associated with the card.
Typically a debit card will be one of several methods for accessing the
deposit account, while for a stored value card it will be the only method of
accessing the underlying value. “Payroll card” is used to describe a card
marketed explicitly for payroll purposes. It is frequently marketed through
the employer who will assist in establishing the card. Because the card acts
as the primary method of accessing the funds, payroll cards are frequently
referred to as a type of stored value card. However, in some cases even
today these are treated as an FDIC account under General Counsel Opinion
No. 8.
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 costs or burdens associated with
providing disclosures about the insurability of such funds?
As the Proposed Rule
is currently drafted, any requirement to disclose FDIC insurance is likely
to create confusion, as illustrated
above in the
discussion about gift cards. However, if the term “deposit” is extended only
to stored value cards in a manner consistent with the policy considerations
of the FDIA, perhaps to payroll cards, we believe a required disclosure as
suggested in the preamble would be appropriate to provide information to
consumers.
8. Should the FDIC
adopt any special rules governing the insurance coverage of any “deposits” underlying
stored value cards?
If adopted in its current form, the Proposed Rule would require
additional guidance on insurance coverage. For example, in the case of a
gift card, it is the intention of the purchaser to transfer the card to
another individual, who will generally not be known to the bank. The
impossibility of determining who should receive the benefit of the FDIC
insurance provides another argument why not all stored value cards should be
treated as insured deposits.
9. Are insured depository institutions offering stored value products
or systems that are not addressed in this notice of proposed rulemaking?
Please explain.
As suggested by the above comments and answers, stored value cards are
marketed in a variety of manners and for a variety of purposes. Cards are
sold both by the issuers and through third parties, to the intended user or
to a third-party with the expectation of delivery by the third-party to the
actual cardholder, and for business and personal purposes. A limited list of
examples includes:
a. Payroll cards.
b. Gift cards sold directly by the financial institution on the internet or
in person, or sold through affinity partners such as shopping malls.
c. Card purchased by businesses for use by employees for business purposes
or intended for personal use as an incentive award.
d. Teen cards that allow parents to monitor spending of their children.
e. Money transfer cards that permit individuals to quickly and safely send
money to friends or relatives in other countries.
f. Cards that act as an access device for flexible health care spending
accounts.
g. Cards used for disbursement of government payments or benefits, such as
tax refunds, student loans, disability or welfare benefits.
Each of the above uses poses different issues regarding the expectations
of the different parties and the policy behind providing FDIC insurance,
again arguing against the overly inclusive approach suggested by the
Proposed Rule.
10. In the case
of a stored value card system in which the cards are issued by an insured
depository institution, and the
depository institution
maintains a pooled “reserve account” reflecting its liabilities for all
cards but does not maintain individual accounts or subaccounts reflecting
its liabilities to individual cardholders, how does the institution keep
track of its liabilities? What technology is used? How does the institution
know when and whether to make payments to merchants?
Bank of America does not currently issue this type of card.
Summary. Although
Bank of America supports the decision to reopen the status of stored
value cards in connection with the FDIA,
we urge the
FDIC to engage in a more comprehensive review of the types of stored value
cards available and consider a more narrowly drawn approach. Although
it may
be appropriate to include some stored value products within the definition
of “deposit”, such as for pay roll or other products that intend an ongoing
banking relationship with multiple deposits, other products should be
excluded. In addition, to avoid creating significant regulatory uncertainty
it is equally important that the FDIC engage the other financial regulatory
agencies in this effort to assure a comprehensive regulatory approach
to
stored valued cards.
If you have any questions about the issues raised in this letter, please
contact the undersigned.
Sincerely,
Daniel G. Weiss
Associate General Counsel
Bank of America, NA
555 California Street, 8th Fl
San Francisco, CA 94101
DGW/rts(687828)
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