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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
FDIC--02--03
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
{{10-31-02 p.4984.63}}(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.
Conclusion
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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