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4000 - Advisory Opinions

Opinion regarding deposit insurance coverage for commingled deposit accounts held in connection with a "payroll card" product offered by a company to its employees

August 16, 2002


Joseph A. DiNuzzo, Counsel

This is in response to your request for an opinion on the deposit insurance available on a commingled deposit account held in connection with the Payroll Card product offered by your company. The product allows employers to pay their employees or contractors electronically. As described in the various materials you have provided to us, X (the "Company") will maintain a custodial account with an FDIC-insured bank. The account will be styled, "Paycard Clearing Account For The Benefit Of [Company Name] Employee Cardholders."

Your question is whether each employee-participant with an ownership interest in the pooled account would qualify for $100,000 of FDIC insurance or whether the entire pooled account would be insured to a limit of $100,000. As we have discussed by telephone and e-mail, the answer hinges on the actual ownership of the deposits and compliance with the FDIC's disclosure and recordkeeping requirements.

Ownership of the Funds

The "Employee Authorization Document" addresses the ownership question. In that document the employee authorizes the employer to deposit the employee's net wages in a custodial account at a designated FDIC-insured bank in an account administered by the Company. The authorization document specifies that the employee will have access to his or her wages through the use of the "Paycard" issued by the bank. The document also indicates that the deposit account will be administered solely by the Company and the employee's wages will be commingled in the account with wages of other individuals.

As I understand it, the arrangement is straightforward: an employer forwards an employee's net wages to a specific account (consisting of funds of numerous such employees and others) at a designated FDIC-insured bank. The Company administers the account. The employee accesses his share of the funds in the account via a "Paycard," tantamount to a debit card.

It seems reasonable to conclude that the employer's transmittal of the wages to the bank is akin to a direct depositing of the wages with the bank. At that point the ownership of the funds is transferred from the employer to the employee. I assume that the employer will have no reversionary interest in the funds in the deposit account. In other words, if for some reason the employee does not use all of his or her share of the funds in the commingled account, the remaining funds would not revert to the employer. If the employer has any such continuing ownership interest in the funds, that fact would be inconsistent with the assumption that the employee is the sole owner of the account funds. Likewise, if any interest is earned on the commingled deposit account I assume the employees would be entitled to that interest and would have to pay taxes on it. Attributing interest earned on the account to the employees would be consistent with the assumption that the employees are the sole owners of the account funds.

Disclosure and Recordkeeping Requirements

The FDIC's deposit insurance regulatons provide, in essence, that deposit accounts maintained by an agent will be insured based on the actual ownership of the funds. 12 CFR § 330.5(a). In other words, the deposit insurance "passes through" the agent to the owners (or principals) for whom the agent is acting. The regulations impose two requirements in order for the FDIC to recognize this pass-through insurance coverage. Id. at § 330.5(b)(1) & (2). First, the account title must indicate that the deposit account is held in an agency capacity. Second, the ownership interest of each principal must be indicated either in the depository institution's deposit account records, the agent's records (maintained in good faith and in the ordinary course of business) or a third party's records (again, maintained in good faith and in the ordinary course of business).

Based on the materials you have furnished, these requirements would be satisfied. The account is titled, "Paycard Clearing Account For the Benefit Of [Company Name] Employee Cardholders." This title indicates that the funds are held for the benefit of others. Also, the Company maintains ongoing records as to the balance of each cardholder in the pooled account.


Based on the facts presented, my opinion is that each participant in the Payroll Card program would be insured as to his or her interest in the commingled account maintained by the Company. Please note, however, that this pass-through insurance coverage would not be separate from any single-ownership insurance coverage for which the participant would be eligible. For example, if a participant in your program maintained a single-ownership account at the same bank where the Company maintained the commingled account, the participant's funds in the single-ownership account would be added to his or her ownership interest in the Payroll Card commingled account and insured to a limit of $100,000. 12 CFR § 330.6.

Also, in connection with the Paycard program it is likely that the Company will be considered a "deposit broker" under the FDIC's regulations. Those regulations define a deposit broker broadly as anyone engaged in facilitating the placement of funds with an insured depository institution. With exceptions, only "well capitalized" insured depository institution may accept brokered deposits. 12 CFR § 337.6.

I hope this letter is fully responsive. Please let me know if you have any additional questions or comments. My phone number is (202) 898-7349.

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