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FDIC Federal Register Citations

PNC Bank, N. A.

November 8, 2005

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW.
Washington, DC 20429.

Re: Part 330--Stored Value Cards

Dear Mr. Feldman:

PNC Bank, National Association (“PNC Bank”), Pittsburgh, Pennsylvania, wishes to take this opportunity to comment on the notice of proposed rulemaking of the Federal Deposit Insurance Corporation (“FDIC”) regarding the meaning of ‘‘deposit,’’ as that term relates to funds at insured depository institutions underlying stored value cards. This proposed rule is a revision of a proposed rule published by the FDIC in April of 2004 (69 Fed. Reg. 20558 (April 16, 2004)) (the “First Proposed Rule”). The purpose of the revised proposed rule (the “Second Proposed Rule”), published at 70 Fed. Reg. 45571 (August 8, 2005), is to address certain issues raised by commentators in response to the First Proposed Rule.

PNC Bank’s parent holding company, The PNC Financial Services Group, Inc. (“PNC”), Pittsburgh, Pennsylvania, is one of the largest diversified financial organizations in the United States, with $93.2 billion in total assets as of September 30, 2005. Its major businesses include consumer banking, institutional banking, asset management, and global fund processing services. PNC Bank has branches in the District of Columbia, Florida, Indiana, Kentucky, Maryland, New Jersey, Ohio, Pennsylvania and Virginia.

PNC Bank submitted comments on the First Proposed Rule in which it made recommendations on several aspects, including the definition of a stored value card and the treatment of different types of cards. PNC Bank raised concerns regarding the impact of the adoption of the First Proposal from a regulatory perspective regarding other deposit related statutes and regulations, such as the Patriot Act, Regulation E, Regulation D and Regulation CC. Further, it was recommended that, in determining what constitutes a deposit as well as what disclosures are appropriate, consumer expectations should be considered.

In the Second Proposed Rule, the FDIC attempts to address the issues set forth above as well as other issues raised by other commentors. In addition, the Second Proposed Rule is considerably scaled back in length, although it maintains the same breadth of the First Proposed Rule. PNC Bank appreciates this opportunity to respond to the comments requested on the Second Proposed Rule.

1. Should the FDIC Recognize The Distinction between the Funds Underlying Payroll Cards and the Funds Underlying Gift Cards?

It is PNC Bank’s opinion that payroll cards and gift cards are distinctly different instruments. The language of the Second Proposed Rule allows for few if any exceptions from insurance coverage “for non-traditional access mechanisms,” which the proposal defines to include “cards, codes, computers, or other electronic means to the extent that such mechanisms provide access to funds received and held by an insured depository institution for payment to others.” The funds underlying the payroll card constitute, for most individuals, their primary recurring monetary transaction. Salary is what workers use to sustain their existence and to preserve their future. In addition, the payroll card is a valuable tool, both for the employee and for the employer. For those employees who do not have banking relationships, the payroll card provides a safe way for them to obtain and spend their pay without the inconvenience of cashing a check or carrying large sums of money in order to transact business. It also gives them the option to pay bills without the additional expenditure of purchasing money orders, since most payroll cards carry the flag of a bankcard association. Payroll cards are also a less expensive payroll alternative for employers.

The loss of funds underlying a payroll card can have significant impact with respect to an individual’s life. In addition, payroll cards are issued to individuals who have been identified by the employer both as to name as well as to address and identifying numbers such as social security number. Due to the nature of the funds underlying the card (i.e. payroll), in most instances the funds may not revert to the employer and thus are the property of the employee. (This comment is not intended to, nor does it, address the issue of garnishment of wages through certain legal proceedings).

The societal importance of funds underlying payroll cards, in addition to the fact that records are maintained by the employer that permit the identification of the holder of the card, argue in favor of treating funds underlying stored cards as insurable to the cardholder. Gift cards, on the other hand, (it is understood that closed system cards would not be covered by the Second Proposed Rule) are issued in many instances by retailers who do not obtain the identification of the owner and are intended to be freely transferable as a gift for any occasion. Gift cards carry an expiration date, and the disposition of the funds on the gift card after expiration is a matter of contract between the retail seller and the individual purchaser. In those instances where the funds used to purchase gift cards are held in a depository institution and where transactions made with the card are funded by the depository institution and not by the retail store itself, the funds underlying gift cards may constitute deposits insured for the benefit of the retailer. The funds should not, however, be insured to the benefit for the card purchaser who, in many instances, may be unknown.

2. Should there be a De Minimis Card Value that is Exempt from Being Insured?

With respect to a gift card issued by the bank itself, where the bank maintains records of at least one party to the transaction, the effect on the bank of exempting de minimis card values ($100) from insurance coverage, would be to reduce its FDIC insurance premiums. Additional effort would have to be expended by the bank, however, in training sales staff that cards with a value of $100.00 or less are not insured, with a value of greater than $100.00 are insured. Therefore, the administrative costs might outweigh the insurance savings on small items. If the bank itself issues gift cards and does not maintain records regarding the identity of any party to the transaction, then funds underlying such cards, regardless of the denomination, should not be considered deposits. To do otherwise, would put any financial institution that fails in the position of having to identify holders of stored value cards whose identities were not obtained in the first instance, and where many times the purchaser may have conveyed the card as a gift to a third party unknown to the bank. Such a result would be unworkable.

3. Should the FDIC Mandate a Rule Forbidding Insured Depository Institutions From Accepting Funds Underlying Payroll Cards Unless 1) the Employer Maintains Records Reflecting the Identity of the Employees and the Amount Payable to Each, and 2) the Employer Relinquishes Ownership of the Funds to the Employees.

It is PNC’s opinion that such a prohibition would be deleterious to business and to the increased use of payroll cards by employers, which the FDIC agrees is beneficial especially to the unbanked and underbanked segment of the economy. If an employer chooses not to relinquish ownership of the funds to the employees, and is not required to do by state law, requiring the employer to do so in order to have a bank accept deposits underlying the payroll cards issued will have a chilling effect on the use of this payroll vehicle. The employer’s interest in the employee’s payroll is a matter that should be subject to state employment and labor laws, and not regulated by the deposit regulations of the FDIC.

4. If an Insured Depository Institution Collects Funds from Cardholders for the Sale of Cards Issued by a Sponsor and Forwards the Funds to the Sponsoring Company, Should the Funds Underlying Such Cards be Considered Deposits?

In consideration of the fact that the bank is not holding the funds but rather forwarding them to the sponsor who will be responsible for paying the transactions created by utilization of the cards, the funds are not held by the depository institution for any purpose and should not be considered deposits under any scenario of FDIC regulations. If the depository institution retains the funds in a pooled account for the sponsoring company, those funds may constitute deposits that are eligible for insurance in favor of the sponsoring company.

5. Should Depository Institutions be Required to Disclose Clearly and Conspicuously the Insured or Non-Insured Status of the Stored Valued Cards Offered to the Public?

With respect to stored value cards that are issued to a cardholder whose identity and monetary interest in the card are recorded in the ordinary course of business either by the issuer or the depository institution holding the funds underlying the card, PNC Bank does not object to a requirement that those cards display a notification regarding insurance. Thus, a payroll card could contain a legend reading “The funds underlying this card are FDIC insured.” We recommend against the use of the disclosure suggested in the proposal: it is too long, too difficult to print legibly on a card, and possibly confusing to the cardholder. Today, commercials, bank teller windows, brochures, etc. are required only to state, “Member FDIC” as an indication to the public that deposits held by an institution are insured. The public is accustomed to that legend and understands its import. Consequently, it is sufficient to state that the funds underlying a stored value card are insured without specifying that they are insured “individually “ and “to the cardholder” as propounded in this Second Proposed Rule. The proposed language would immediately confuse the cardholder with respect to how else the funds might be insured and for whose benefit, if not to the cardholder. Any card with underlying deposits that are not insured to the cardholder should not contain any legend at all; the card should simply be silent on the issue of FDIC insurance to avoid cardholder confusion.

In today’s world, most payroll cards are disseminated to employees with a disclosure that includes information regarding usage fees and FDIC insurance coverage. We would argue that that disclosure is sufficient without placing a disclosure on the physical card.

6. Should the Name of the Depository Institution that Holds the Underlying Funds be Printed on the Card?

Cards that are FDIC insured for the benefit of the cardholder, should contain the name of the depository institution. In this way, if the institution fails, the cardholder will know to make a claim on that institution. For other cards, such as gift cards, that are not FDIC insured for the benefit of the cardholder, whether the name of the depository institution that holds the underlying funds appears on the card should be a contractual issue between the retailer and the issuing bank.

7. Parity.

With respect to other “non-traditional access mechanisms” such as computers, the FDIC does not state how any required disclosures would be displayed. If the FDIC issues a regulation requiring an FDIC insurance disclosure on the physical card, the same requirement must be made of other non-traditional access mechanisms in order to avoid unequal treatment. In any instance in which the FDIC considers a regulation in this area, a regulation should not be adopted unless it will be made applicable equally to all non-traditional access mechanisms and all issuers and sponsors of such non-traditional access mechanisms.

Thank you for considering the views expressed in this letter. If you have any questions, please feel free to contact me.

Sincerely yours,

James S. Keller


 


Last Updated 11/28/2005 Regs@fdic.gov

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