4000 - Advisory Opinions
Deposit Insurance Coverage Afforded Funds Held by Money Order Company and Funds Held by Depository Institution as Agent for Money Order Company
March 21, 1991
J. William Via, Jr., Counsel
This is in response to your letter of January 29, 1991, as amplified by our telephone conversation of March 15, 1991, inquiring about deposit insurance.
In brief, your client, a money order company, sells negotiable money orders, through various agents, which are paid out of a deposit account that the company maintains in an insured bank. In essence, as you say, the purchaser of a money order buys a draft on the company's deposit account. As indicated in our conversation, this does not create an ownership interest in the account for the purchasers (or subsequent holders) of the money orders, and does not provide a basis for "pass-through" deposit insurance. The words "Agent for Purchasers", following the company's name, in the account title is incorrect and should be removed.
One of the agents that sells the money orders is the insured bank in which the money order company maintains its deposit account for paying its money order obligations. When the bank sells money orders for the company it deposits the proceeds temporarily in a separate deposit account before transferring them to the company's deposit account described in the preceding paragraph. If this separate deposit account is reflected on the deposit account records of the bank as held by the bank as agent or custodian for the mortgage company the funds in it will be insured up to $100,000, separate from and in addition to the ($100,000) insurance provided for the deposit described in the preceding paragraph. See 12 CFR §330.10(a). The existing collection account incorrectly reflects that it is held "for Purchasers". This should be revised to show the proper owner, the company.