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4000 - Advisory Opinions

Bank Must Report Funds Collected From Purchases of American Express Official Checks as Deposits in Its Call Report


August 6, 1993

Jules Bernard, Counsel

This letter responds to your letter of July 1, 1993, addressed to Assistant Director Charles Collier, Office of Specialty Examinations and Financial Reporting, FDIC, and also memorializes my conversation with you on July 28, 1993.

I understand that the *** ("Bank") participates as an agent bank in the American Express Official Check Program. An agent bank acts on behalf of the American Express Company for the purpose of selling Official Checks. The agent bank has blank checks on hand that represent obligations drawn on the American Express Company (not the agent bank). When another bank ("user bank") wants to take advantage of the Official Check Program, the agent bank fills out a check in whatever denomination the user bank desires, collects the appropriate amount of funds from the user bank, and delivers the Official Check to the user bank. The agent bank holds the proceeds for the American Express Company until the next banking day. At that time the agent bank sends that sum to the American Express Company. The American Express Company pays the agent bank a fee for providing this service.

I further understand that the Bank reported the funds paid by the user banks as nondepository liabilities in the Bank's call report for March 31, 1993.

You indicate that the Bank reported the funds in this manner because of a letter I wrote to an official of the American Express Company discussing the status of American Express Official Checks for assessment purposes. Letter to Paul Seader, Esq., Assistant General Counsel, American Express Co., from Jules Bernard, Counsel, FDIC (February 8, 1993) ("Seader letter").

I consider your reliance on the Seader letter to be misplaced. The Seader letter addressed the question whether the Official Checks themselves were "deposits" of the bank that sold the checks within the meaning of § 3(1)(4) of the Federal Deposit Insurance Act. Section 3(1)(4) says that the following items constitute "deposits:"

(4)  outstanding draft (including advice or authorization to charge bank's or savings association's balance in another bank or savings association), cashier's check, money order, or other officer's check issued in the usual course of business for any purpose, including without being limited to those issued in payment for services, dividends, or purchases, . . .

12 U.S.C. § 1813(1)(4).

I took the view that the Official Checks were not "deposits," because the agent bank did not issue the instruments itself. Seader letter at 3.

As for the funds that the bank collected from the purchasers on behalf of the American Express Company, however, I wrote:

(To be sure, the agent bank holds funds for American Express for one banking day; but I understand that you do not dispute that these funds are "deposits," and are insured and assessable as such.)

Seader letter at 2.

You now raise the issue that the American Express Company did not present.

Section § 3(1)(3) of the Federal Deposit Insurance Act says that the term "deposit" includes:

(3)  money received or held by a bank or savings association, or the credit given for money or its equivalent received or held by a bank or savings association, in the usual course of business for a special or specific purpose, regardless of the legal relationship thereby established . . . .

12 U.S.C. § 1813(1)(4).

The FDIC's Assessment Decision No. 160 declares:

When an insured bank sells travelers' checks issued by others and holds the proceeds of such sales as agent, such proceeds are deposits and must be included in the assessment base. . . .

12 C.F.R. § 327.260 (1959).

The FDIC Board of Directors revoked its Assessment Decisions in 1961. 26 Fed. Reg. 287 (1961). The decisions no longer represent the official rulings of the FDIC, but they still have value as evidence of the FDIC's past practice.

Accordingly, in my view, the funds that a selling bank receives from buyers, which funds are to be paid over to the American Express Company, come within the scope of this provision. I consider that the Bank must report these funds as "deposits" on its Call Report.

I must caution you that the views I express in this letter are those of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal interpretations of its rules, but only pursuant to rule-making proceedings. See, e.g., 12 C.F.R. § 329.102 (interpreting rules governing the payment of interest on demand deposits). The FDIC does not issue formal interpretations in the form of individual letters or rulings on particular cases.

If you have any further questions about this matter, or if I can help you in any other way, please call me at (202) 898-3731.

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