Federal Deposit
Insurance Corporation

U.S. Bancorp


From: JANICE.DECKER@usbank.com [mailto:JANICE.DECKER@usbank.com]
Sent: Monday, November 07, 2005 12:22 PM
To: Comments
Cc: john.focht@usbank.com
Subject: Part 330--Stored Value Cards - Deposit Insurance Coverage; Stored Value Cards and Other Nontraditional Access Mechanisms


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

      Re:  Part 330 – Stored Value Cards

Dear Mr. Feldman:

U.S. Bancorp appreciates the opportunity to comment on a new proposed rule
(“Proposed Rule”) issued by the Federal Deposit Insurance Corporation
(“FDIC”) as a replacement for its April 2004 proposed rule, to clarify when
funds at insured depository institutions issuing prepaid cards would
constitute “deposits” under the Federal Deposit Insurance Act.  Under the
proposed rule, deposit insurance coverage could be extended broadly to a
variety of prepaid cards (“cards”), including gift and payroll cards.

Based on total assets of over $206 billion, U.S. Bancorp is the sixth
largest bank holding company in the United States.  Major lines of business
include wholesale banking, consumer banking, private client, trust and
asset management, payment services and is one of the leading/largest
issuers of prepaid cards in the United States.  U.S. Bancorp has been a
leader in advancing new prepaid payment products in the country and is
pleased to present the specific comments to the proposal as outlined below.

Overview

In reviewing the Proposed Rule, U.S. Bancorp has identified two specific
areas that the FDIC is attempting to address.

The first covers the ability to extend pass-through deposit insurance rules
to cards issued by non-financial institutions, where the cards sold and the
funds received are deposited in the bank by the party that sold the cards.
The second area deals with the scenario where the card is sold directly by
a financial institution (“bank”), whereby the FDIC is proposing broad
direction that all such sales would be considered deposits of the
cardholder and, as such, insured for that cardholder.

US Bank’s Position

In the first case, if the seller of the card, e.g., a retailer, sells
cards, receives monies and    deposits the funds into a bank account, one
of two things could occur.  If the monies are deposited in the seller’s
name, the deposit would be an insured deposit of the seller.  If the
records of the depository institution indicate that the funds no longer are
liabilities owed to the seller, but to the cardholders, and subsequent
subsidiary records identify those cardholders and the amounts due to each,
the funds would be insured at the cardholder level.

U.S. Bank agrees with this part of the proposal.

The second part of the Proposed Rule covers a bank’s sale of cards. U.S.
Bancorp believes this part of the Proposed Rule is too broad. The FDIC must
distinguish between different types of prepaid cards sold by banks.

We feel that the FDIC and the banks need to explore and determine whether
or not the underlying funds received from the cards sold should be
considered deposits.  Is the owner or buyer of the card relying on the
security of the banking system, including the deposit insurance system, to
protect his/her funds that were placed on the card?  U.S. Bancorp feels
that the answer to this question changes with the type of product funded,
and as such, must distinguish between the various products that are sold.

In particular, U.S. Bancorp recommends that the FDIC examine the rationale
for including funds contained in certain cards, such as gift cards, as
deposits.  Gift cards are fundamentally different from bank deposits; they
are far less flexible than deposit accounts.  At the same time, gift cards
are more flexible than retailer gift certificates by providing a broader
range of transaction alternatives for the consumer, but are not much
different than certificates that are not covered by insurance.  In
addition, the buyer or recipient of the gift card seldom chooses it because
of the financial institution that issues it, with the thought of it being a
deposit account, nor is it purchased because it is insured. Lastly, buyers
and recipients of these cards are seldom registered as the owners of the
cards; cards are anonymous and can move from person to person.

Broadly including these cards in the definition of bank issued prepaid
cards that are deposits would not be appropriate.

In contrast, payroll cards, government disbursement cards and general
purpose re-loadable cards have already been addressed in the market as far
as deposit insurance is concerned.  Many of these accounts are funded
through employer/government/parent deposits and function as a substitute
for traditional bank deposit accounts and are already structured so that
they would be treated as insured deposits.

We recommend that the FDIC come up with a workable distinction between
prepaid cards that function as insured deposits and prepaid cards that are
not.  These distinctions need to be both meaningful and practical while
consistent with the definition of “deposit” in the FDIA.  As we read the
Proposed Rule, we feel that it depicts that all monies received by banks in
the sale of prepaid cards are considered as deposits. U.S. Bancorp
disagrees with this approach.

Disclosures related to cards

There may be a concern as to whether or not the cardholder knows or
understands that their card is insured.  The FDIC could, require a simple
notice of insurance in the agreements issued for prepaid cards.  If the
card does not qualify for deposit insurance, no disclosure would be made.

Impact on other laws

U.S. Bancorp appreciates the work that the FDIC is undertaking with the
Proposed Rule.  At the same time, as a pioneer in this regard, the FDIC
must also acknowledge that the Proposed Rule, if adopted, will affect the
views of other regulators.  If the FDIC treats some or all cards as
deposits, it will inevitably affect the way that other regulators view the
appropriate coverage of the regulations that they administer.

U.S. Bancorp thanks you for the opportunity to comment on this important
proposal.  If you have any questions concerning these comments or our
position, please do not hesitate to contact me at (414) 765-6260.

Sincerely,

John Focht
Vice President