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5500 - General Counsel's Opinions
GENERAL COUNSEL'S OPINION NO. 8—STORED VALUE CARDS
Introduction
Insured depository institutions are increasingly utilizing new
technology to offer novel and innovative products to customers. One
such product is the stored-value card. A stored value card stores
information electronically on a magnetic stripe or computer chip and
can be used to purchase goods or services. The balance recorded on the
card is debited at a merchant's point of sale terminal when the
consumer makes a purchase. Generally, stored value cards contain all
the information necessary to identify the card and its value. This has
enabled point of sale terminals in most systems to be "off
line". 1
In other words, it is unnecessary to contact a depository institution
or database for transaction authorization.
Some stored value cards are designed to be used until their value is
exhausted and then are disposed. Other more sophisticated stored value
cards may be "reloadable". The cards may have multiple uses, such
as credit and debit features, in addition to the stored value
component. Also, a particular stored value card system may have
multiple card issuers and multiple card-accepting merchants. Some cards
(or the stored value component of some
{{8-30-96 p.5535}}cards) may be utilized by
whomever may be in possession of such card, while others require a
personal identification number to use.
Consumers may typically load value 2
onto a card in a number of ways. A customer without a pre-existing
depositor relationship with an insured institution may purchase a
stored value card from that institution. A deposit account holder may
load value onto the card by withdrawing from an account through a
teller, via an ATM, or, potentially, via a specially equipped telephone
or personal computer. At least one system would allow the consumer to
transfer the stored value to another person's card.
Typically, stored value cards are touted as substitutes for cash.
Technically, however, they are not cash, and they do not have the
finality of cash. Although it may not be apparent to the consumer, a
stored value card transaction must typically move through a complex
payment system before a payment is completed. Moreover, what is
actually stored on stored value cards is information that, through the
use of programmed terminals, advises a prospective payee that rights to
a sum of money can be transferred to the payee, who in turn can
exercise such right and be paid.
In addition to the development of stored value cards, stored value
systems are being developed for making payments over computer networks
such as the Internet. In such systems funds may be accessed using a
personal computer, and transferred to individuals, merchants, or
companies. While this opinion addresses stored value cards, the Legal
Division believes that in general the principles discussed herein would
apply equally to stored value computer network payment products.
Types of Stored Value Systems 3
In some systems the funds underlying the stored value card could
remain in a customer's account until the value is transferred to a
merchant or other third party, who in turn collects the funds from the
customer's bank ("Bank Primary--Customer Account
Systems"). 4
In other systems, as value is downloaded onto a card, funds are
withdrawn from a customer's account (or paid directly by the customer)
and paid into a reserve or general liability account held at the
institution to pay merchants and other payees as they make claims for
payments ("Bank Primary--Reserve Systems").
In still other systems, the electronic value is created by a third
party and the funds underlying the electronic value are ultimately held
by such third party ("Bank Secondary Systems"). In such systems,
depository institutions act as intermediaries in collecting funds from
customers in exchange for electronic value. In some Bank Secondary
Systems, the electronic value is provided to the institution to have
available for its customers. As customers exchange funds for electronic
value, the funds are held for a short period of time and then forwarded
to the third party ("Bank Secondary--Advance Systems"). In other
systems of this nature, the depository institution will exchange its
own funds for electronic value from the third party and in turn
exchange electronic value for funds with its customers ("Bank
Secondary--Pre-Acquisition Systems").
In Bank Secondary Systems, the depository institution may have a
contingent liability to redeem the electronic value from consumers and
merchants. As such electronic value is redeemed, the institution may in
turn exchange the electronic value for funds with the third
party.
{{8-30-96 p.5536}}
Primary Legal Issue
From the FDIC's perspective, the primary legal issue raised by the
development of stored value card systems is whether and to what extent
the funds or obligations underlying stored value cards constitute
"deposits" 5
within the meaning of section
3(l) of the Federal Deposit Insurance Act (FDIA) and are
therefore assessable and qualify for deposit
insurance. 6
The FDIC General Counsel's legal opinion on this issue is contained
herein. The opinion expressed herein is general in nature and based
upon the information that the FDIC staff has gathered on stored value
cards to date. No view is expressed on any specific stored value card
system and the specific facts of any such system might cause the
opinion expressed herein to change.
Applicable Statutes
An analysis of whether funds underlying the value on a stored value
card are considered to be a part of the institution's assessment base
and qualify for deposit insurance coverage begins with the definition
of a deposit under section 3(l) of the FDIA. This section provides in
pertinent part that:
The term "deposit" means--
(1) The unpaid balance of money or its equivalent received or
held by a bank or savings associataion in the usual course of business
and for which it has given or is obligated to give credit, either
conditionally or unconditionally, to a commercial, checking, savings,
time, or thrift account, or which is evidenced by its certificate of
deposit, thrift certificate, investment certificate, certificate of
indebtedness, or other similar name, or a check or draft drawn against
a deposit account and certified by the bank or savings association, or
a letter of credit or a traveler's check on which the bank or savings
association is primarily liable * * *
(2) Trust funds as defined in this Act received or held by such
bank or savings association, whether held in the trust department or
held or deposited in any other department of such bank or savings
association,
(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, including without being limited to, escrow funds, funds
held as security for an obligation due to the bank or savings
association or others (including funds held as dealers reserves) or for
securities loaned by the bank or savings association, funds deposited
by a debtor to meet maturing obligations, funds deposited as advance
payment on subscriptions to United States Government securities, funds
held for distribution or purchase of securities, funds held to meet its
acceptances or letters of credit, and withheld taxes * * *
(4) Outstanding draft (including advice or authorization to
charge a bank's or a 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,
{{8-30-96 p.5537}}including without being
limited to those issued in payment for services, dividends, or
purchases, and
(5) Such other obligations of a bank or savings association as
the Board of Directors, after consultation with the Comptroller of the
Currency, Director of the Office of Thrift Supervision, and the Board
of Governors of the Federal Reserve System, shall find and prescribe by
regulation to be deposit liabilities by general usage * * *
12 U.S.C. 1813(l).
Analysis
For purposes of this analysis, the most relevant provisions of
section 3(l) of the FDIA are subsections (1)
and (3). Synthesizing the requirements of these two subsections, in
order for the funds underlying stored value cards to constitute
deposits under section 3(l)(1) or (3) of the
FDIA, 12 U.S.C. 1813(l)(1) & (3), the funds
must represent: (1) An unpaid balance of money or its equivalent
received or held by an institution; (2) in the usual course of
business; and (3) either (a) the institution must have given or be
obligated to give credit to a commercial, checking, savings, time, or
thrift account; or (b) the funds must be held for a special or specific
purpose.
An Unpaid Balance of Money or Its Equivalent Received or
Held by an Institution
The first requirement is that there must be "an unpaid balance of
money or its equivalent received or held by a bank or savings
association". In each type of Bank Primary System described above,
the institution will hold the funds to pay merchants and other payees.
Consequently, this requirement of the statute would be satisfied.
In Bank Secondary--Advance Systems the funds may initially be
received by the institution but later transferred to a third party. The
issue then arises as to whether the fact that funds are received and
held by an institution, albeit for a short time period, satisfies this
requirement of the statute, thereby possibly creating a deposit
liability during the period for which the institution holds the money.
In my opinion in Bank Secondary--Advance Systems funds held by an
institution for a time period prior to transfer would meet the
statutory requirement of "the unpaid balance of money or its
equivalent received or held by a bank or savings association". In
the analogous case of an institution selling travelers' checks issued
by others, the FDIC staff has long held the opinion that the proceeds
from such sale are deposits while held by the
institution. 7
In my view, an institution holding funds prior to transfer to a third
party in a Bank Secondary--Advance System is indistinguishable from the
aforementioned travelers' check case. It is important to note, however,
that the institution would owe the obligation to the third party, not
the holder of the card. Thus, to the extent such funds may constitute a
deposit, the "depositor" would be the third party. Moreover, any
deposit liability for such funds would be extinguished upon transfer of
the funds to the third party.
In Bank Secondary--Pre-Acquisition Systems the funds underlying the
stored value are received or held by the third party. The institution
in effect advances these funds on behalf of its customers and later
collects funds from its customer in exchange for electronic value
loaded onto stored value cards. Because the funds underlying the stored
value are held by the third party, in may view, such funds are received
or held by the third party, not the depository institution.
Consequently, it appears that the requirement of "an unpaid balance
of money or its equivalent received or held by [an institution]"
would not be satisfied in Bank Secondary--Pre-Acquisition Systems.
Also in some Bank Secondary Systems the institution may by contract
retain a contingent liability to redeem the electronic value from
consumers and merchants. This raises the issue whether a contingent
liability to redeem the electronic value represents an unpaid balance
of money or its equivalent received or held by an institution.
In
{{8-30-96 p.5538}}interpreting
12 U.S.C.
1813(l)(1), the Supreme Court, in
accordance with the purpose of the statute, imposed the requirement
that a deposit of money or its equivalent be "hard earnings" that
businesses and individuals have entrusted to banks. FDIC v.
Philadelphia Gear Corp., 476 U.S. 426, 435 (1986). The Court held
that a stand-by letter of credit does not fall within the meaning of
section 3(l)(1) of the FDIA because this was
only a contingent obligation and did not represent "hard
earnings". Id. at 440.
Any contingent liability of an institution to redeem electronic
value in a Bank Secondary System would in my view not constitute
"hard earnings" and thus, in accordance with the Court's holding
in Philadelphia Gear, would not satisfy the requirement of
an unpaid balance of money or its equivalent received or held by a bank
or savings association. In Bank Secondary Systems the "hard
earnings" are ultimately held by the third party, not the
institution.
In the Usual Course of Business
Insured depository institutions are increasingly participating in
stored value card systems. In light of this, the FDIC would likely view
any funds received or held by institutions pursuant to participation in
stored value card systems to be in the usual course of business.
The Institution Must Have Given or Be Obligated To Give
Credit to An Account
To be a deposit under section 3(l)(1) of
the FDIA, 12 U.S.C. 1813(l)(1), money or its
equivalent must not be held or received by an institution in the usual
course of business, but must (unless another alternative condition is
satisfied) be a payment for which the institution has given or is
obligated to give credit to a commercial, checking, savings, time or
thrift account. This requirement would not appear to be at issue in
Bank Primary--Customer Account Systems because the funds remain
credited to the customer's account until claims on such funds are made
by payees. Assuming the other aforementioned requirements are met, the
funds underlying Bank Primary--Customer Account Systems would appear to
be deposits under section 3(l)(1) of the FDIA,
12 U.S.C.
1813(l)(1).
With respect to Bank Primary--Reserve Systems and both types of Bank
Secondary Systems, stored value card products appear to be structured
so that the institution does not credit and is not obligated to credit
a commercial, checking, savings, time or thrift account. As described
previously, when a customer purchases a stored value card in a Bank
Primary--Reserve System funds are withdrawn from the customer's account
(or paid directly by the customer) and paid into a reserve or general
liability account maintained by the institution. Such accounts are
routinely created and maintained by insured depository institutions.
The FDIC does not consider such reserve or general liability accounts
to be "deposits" within the meaning of section
3(l)(1) of the FDIA, 12 U.S.C.
1813(l)(1), because there does not appear to
be an obligation to credit the funds to a commercial, checking,
savings, time, or thrift account. In addition, the sample agreements
which the FDIC staff has reviewed clearly indicate that the parties to
a stored value card agreement, i.e., the insured depository
institution and the purchaser of the card, do not intend that the funds
be credited to one of the five enumerated accounts.
Similarly, in Bank Secondary Systems the funds which consumers pay
to load value onto a stored value card are ultimately held by the third
party originator of the stored value. In these cases also it would
appear that no commercial, checking, savings, time or thrift account
has been credited nor is the institution obligated to credit such an
account.
The foregoing notwithstanding, at some point the institution may
become obligated to credit a payee's deposit account maintained at that
institution and thus create a deposit liability to the payee. For
example, after a transaction wherein the value on the card is
transferred from a consumer to a merchant, and the merchant requests
that the funds underlying the electronic value be credited to the
merchant's account, the institution would appear to be under an
obligation to credit the merchant's account; thereby, possibly creating
a deposit liability to the merchant.
{{8-30-96 p.5539}}
If the Institution Has Not Given or Is Not Obligated To Give
Credit To An Account; The Funds Must Be Held For a Special or Specific
Purpose
If funds held by an institution underlying stored value cards are
not deposits under section 3(l)(1) of the
FDIA, 12 U.S.C. 1813(l)(1), because the
institution is not obligated to credit an account, the analysis must
turn to whether such funds may be considered deposits under section
3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3). In order to be considered a
deposit under 3(l)(3) of the FDIA, the value
underlying a stored value card must represent: (1) Money or its
equivalent (or the credit given for money or its equivalent) received
or held by an institution; (2) in the usual course of business; and (3)
for a special or specific purpose.
The first two requirements are essentially the same as under section
3(l)(1) of the FDIA as discussed above. While
section 3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3), does not require that the
institution be obligated to credit the funds to an account, it does
require that funds be held "for a special or specific purpose" in
order to qualify as a deposit.
Congress included in the statute, without limitation, the following
examples of a bank or savings association holding funds for a special
or specific purpose: "escrow funds, funds held as security for an
obligation due to the bank or savings association or others (including
funds held as dealers reserves) or for securities loaned by the bank or
savings association, funds deposited by a debtor to meet maturing
obligations, funds deposited as advance payment on subscriptions to
United States Government securities, funds held for distribution or
purchase of securities, funds held to meet its acceptances or letters
of credit, and withheld taxes * * *."
12 U.S.C.
1813(l)(3).
While Congress included in section 3(l)(3)
a number of special or specific purposes for which money may be held to
qualify as a deposit, the clause "without being limited to" means
that the section does not state each and every such purpose. Courts
have held that money covering a Clearing House Interpayment System
(CHIPS) release 8
and monies wired by a loan participant to the lead bank for the purpose
of funding a participated loan 9
, each constitute funds held for a special or specific purpose within
the meaning of this statute. The case law seems to suggest that to
qualify as a deposit under 3(l)(3) the purpose
for which the money is being held must at least be as specific as the
purposes listed in the statute. See FDIC v. European American
Bank & Trust Co., 576 F. Supp. 950, 957 (S.D.N.Y. 1983);
Seattle-First Bank v. FDIC, 619 F. Supp. 1351, 1360 (D.C.
Okl. 1985).
When an institution holds funds in exchange for electronic value
embedded in a stored value card, the relevant questions are: (1) What
is the purpose for which these funds are being held? and (2) Is that
purpose at least as specific as the purposes enumerated in the statute?
With respect to Bank Primary--Reserve Systems funds appear to be
held by an institution to meets its obligations to payees as they make
claims on such funds pursuant to general or miscellaneous and unrelated
transactions undertaken within the stored value card system. It is my
opinion that this purpose is fundamentally different from the examples
listed in section 3(l)(3) of the FDIA, 12
U.S.C. 1831(l)(3). For example, an escrow
account will typically have a very specific purpose associated with a
particular transaction (or two or more related transactions).
Similarly, funds underlying a letter of credit and funds held for
purchasing securities are linked to a specific transaction or
transactions.
The cases holding that certain funds are deposits within the meaning
of section 3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3), also involve funds held with
respect to a specific
{{8-30-96 p.5540}}transaction. For example, in
Seattle-First Bank the court held that monies wired by a
loan participant to the lead bank at the lead bank's direction for the
purpose of funding a participated loan were monies received for the
special or specific purpose of funding the loan. 619 F. Supp. at 1360.
In that case, as in the examples contained within section
3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3), the funds held are for a purpose
associated with a particular transaction or two or more related
transactions.
Conversely, a customer who transfers funds to an institution in
exchange for electronic value may engage in any of a number of
unrelated transactions. Indeed, when a customer has electronic value
loaded onto a card he may have no idea as to what transactions he will
use the card to engage in, nor whom the transferees may be. Thus,
unlike the examples listed in the statute, funds held by an institution
to redeem electronic value could be associated with general or
miscellaneous unrelated transactions. Consequently, an institution
holding funds to meet obligations to transferees in a Bank
Primary--Reserve System does not appear to be as specific a purpose as
the examples in the statute and in the cases finding deposit
liabilities under section 3(l)(3) of the
FDIA. 10
Therefore, in my view such funds would not be held for a special or
specific purpose within the meaning of section
3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3). 11
On the other hand, in the case of Bank Secondary--Advance Systems
the funds are being held or received by the institution in order to pay
the third party in consideration of the electronic value transferred by
such third party to the institution and ultimately its customer. Thus,
like the examples listed in the statute and the cases finding monies to
be deposits under section
3(l)(3), 12
these funds are linked to a specific transaction. Moreover, these funds
are analogous to funds held for one business day by an agent bank
selling travelers checks on behalf of a company issuing travelers'
checks. The FDIC staff considers such funds to be deposits of the bank
under 3(l)(3) of the FDIA until such funds are
forwarded to the company. See FDIC
Staff Advisory Opinion 93-55, (August 6, 1993). Thus, in the
case of Bank Secondary--Advance Systems, the funds being held or
received in order to pay the third party may be considered held or
received for a special or specific purpose within the meaning of
section 3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3) and may therefore qualify as a
deposit under such section. It is important to note, however, that such
a deposit liability would be to the third party, not the institution's
customer.
Other Subsections of the Statute Defining Deposit—Trust
Funds
Trust funds are deposits under section
3(l)(2) of the FDIA, 12 U.S.C.
1813(l)(2). For purposes of the FDIA trust
funds are funds held by an insured depository institution in a
fiduciary capacity, including funds held as trustee, executor,
administrator, guardian, or agent. 12
U.S.C. 1813(p). The FDIC staff is not aware of stored value
card systems in which funds are held by an institution in a fiduciary
capacity.
Other Subsections of the Statute Defining Deposit—Certain
Negotiable Instruments
Section 3(l)(4) of the FDIA, 12 U.S.C.
1813(l)(4), includes within the definition of
deposit an "outstanding draft * * * cashier's check, money order,
or other officer's check * * *." Stored value obligations have
been analogized to cashier's checks and money orders. Indeed, Bank
Primary--Reserve System stored value cards operate in much the same way
that these instruments do. Nonetheless, unlike the payment mechanism
listed in
{{8-30-96 p.5541}}the statute, stored value
cards are not negotiable
instruments. 13
Moreover, unlike a cashier's check or money order, the institution is
not drawing a check upon itself. Rather, the institution's customer
transfers to a payee the rights to a sum of money being held at the
institution and in making payment to the payee, the institution is
recognizing that its customer has transferred that right. See
FDIC v. European American Bank & Trust Co., 576 F. Supp. at
957.
Notwithstanding the fact that stored value card obligations operate
in a manner similar to cashier's checks and money orders, I am of the
view that there are differences between these instruments and stored
value cards. Moreover, for purposes of considering whether a payment
mechanisms is a deposit within the meaning of section
3(l)(4) of the FDIA, 12 U.S.C.
1813(l)(4), I believe that Congress did not
intend to include payment mechanisms other than the negotiable
instruments enumerated in the subsection.
Id. 14
Other Subsections of The Statute Defining Deposit—Authority
of the FDIC to Promulgate a Regulation Finding That Funds Underlying
Stored Value Cards are Deposits
In addition to the statutory definition of deposits under sections
3(l)(1)-(4) of the FDIA, 12 U.S.C.
1813(l)(1)-(4), section
3(l)(5) of the FDIA, 12 U.S.C.
1813(l)(5), gives the Board of Directors the
authority, after consultation with the Comptroller of the Currency,
Director of the Office of Thrift Supervision, and the Board of
Governors of the Federal Reserve System, to find and prescribe by
regulation other obligations of an insured depository institution to be
deposit liabilities by general usage. The FDIC has not promulgated such
a regulation.
Summary
In summary, in my opinion funds underlying Bank Primary--Customer
Account Systems appear to be funds held by an institution, in the usual
course of business, which remain credited to the customer's account
until the payee makes a claim on the funds. Such funds would therefore
appear to be deposits under section 3(l)(1) of
the FDIA, 12 U.S.C. 1813(l)(1).
As a general matter, funds held by an institution to meet
obligations under Bank Primary--Reserve Systems would appear not to be
deposits under section 3(l)(1) of the FDIA, 12
U.S.C. 1813(l)(1), because the funds are not
credited to or obligated to be credited to a commercial, checking,
time, or thrift account.
It is my further opinion that the funds underlying Bank
Primary--Reserve Systems are not deposits under section
3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3), because such funds are not held
for a special or specific purpose. The examples of funds held for such
purposes in the statute are all linked to one or more specific
transactions. Conversely, the funds underlying stored value card
transactions are not necessarily linked to a specific transaction.
In Bank Secondary--Pre-Acquisition Systems the funds underlying the
stored value are, in my view, received or held by the third party, not
the depository institution. Consequently, it appears that this
requirement of seciton 3(l)(1) and (3) of the
FDIA, 12 U.S.C. 1813(l)(1), (3), would not be
satisfied in such systems.
The funds held by an institution in a Bank Secondary--Advance System
would not create a deposit liability to the customer because the
liability is owed to the third party for whom the institution is
temporarily hold the funds. Such funds may create a deposit liability
to the third party. The funds are held by the institution in the usual
course of business prior to transferring such funds to the third party.
The parties may or may not intend that the institution credit an
account. Even if the institution is not obligated to
{{8-30-96 p.5542}}credit such funds to an
account, and thus such funds would not be a deposit under section
3(l)(1) of the FDIA, the funds may be deemed
to be held for the specific purpose of transferring the funds to the
third party and thus would be considered a deposit under section
3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3).
The fact that an institution may retain a contingent liability to
redeem electronic value from consumers and merchants in Bank Secondary
Systems does not meet the requirement of "money or its equivalent
held by an institution" and therefore would not give rise to a
deposit liability to the customer under either
3(l)(1) or (3) of the FDIA, 12 U.S.C.
1813(l)(1), (3).
With respect to the other provisions of section
3(l) of the FDIA, 12 U.S.C.
1813(l), the FDIC staff is not aware of stored
value card systems in which funds will be held as trust funds. Thus,
the funds underlying stored value cards would not be deposits under
section 3(l)(2) of the FDIA, 12 U.S.C.
1813(l)(2). Similarly, while stored value
cards have certain similarities to cashier's checks and money orders,
they are not drafts drawn on the bank, nor are they negotiable
instruments. Consequently, they cannot be considered deposits under
section 3(l)(4) of the FDIA, 12 U.S.C.
1813(l)(4).
Notwithstanding the question of whether and under what circumstances
stored value card obligations are deposits within the meaning of
section 3(l)(1)-(4) of the FDIA, 12 U.S.C.
1813(l)(1)-(4), section
3(l)(5) of the FDIA, 12 U.S.C.
(l)(5), gives the Board of Directors the
authority to find and prescribe by regulation that other obligations of
an insured depository institution are deposit liabilities by general
usage. The FDIC has not promulgated such a regulation.
This General Counsel Opinion only addresses the extent to which
funds underlying stored value cards may constitute a deposit under 12
U.S.C. 1813(l). It is not intended to address
the way in which FDIC would act in its role as receiver. In the event
of an institution's failure, to the extent that any funds underlying
stored value cards are recognized as deposits, there may be
recordkeeping issues and other issues as to who may be entitled to
deposit insurance and in what amount. See
12 C.F.R. Part 330.
Finally, the FDIC would expect that institutions clearly and
conspicuously disclose to their customers the insured or non-insured
status of their stored value products, as appropriate.
[Source: 61 Fed. Reg. 40490, August 2,
1996]
1While most stored value card systems are "off line", we
understand that there are "on line" stored value card systems
(i.e., the primary record of the balance of funds available
to the consumer is not maintained on the card itself, but at the
depository institution or a central data facility). Such cards are
similar to debit cards except that the cardholder specifically
designates the amount of money that may be accessed through the card
and once so designated, such funds may only be accessed through the
card. So far as we are aware, the systems of this type are not
currently being utilized by depository institutions.
In its proposed amendment to Regulation E, 61 FR 19,696 (May 2,
1996), the Board of Governors of the Federal Reserve System has
distinguished between "off-line accountable", "off-line
unaccountable", and "on-line" stored value systems in
determining whether the regulation applies to various types of stored
value systems. This opinion does not use these distinctions. This is
not intended as a criticism or rejection of the Board's classification
system. Rather, it is indicative of the fact that these particular
distinctions are not necessarily germane as to whether and under what
circumstances the funds underlying a stored value card are
"deposits" under the Federal Deposit Insurance Act (FDIA). Go Back to Text
2The use of the phrase "load value onto a card",
"electronic value", or any similar terms used in this opinion, is
not meant to imply that the information loaded on stored value cards is
legal tender or anything similar to legal tender. See 12 U.S.C. 5103.
Rather, as discussed in the text below, such information is more in the
nature of a right to be paid a sum of money. Go Back to Text
3The classification of stored value systems described below is
not intended to encompass all of the possible ways that stored value
card systems may be structured. Rather, this classification system
represents a mechanism to generalize the circumstances under which the
funds underlying stored value cards may or may not be considered
deposits within the meaning of the FDIA. Go Back to Text
4Such a system would be similar to debit card systems, except
that, unlike a debit card the information or value is on the card
itself. The staff is not aware of any such system currently in
development. It is our understanding, however, that such a system could
be developed. Go Back to Text
5Whether and to what extent the funds or obligations underlying
stored value cards constitute "deposits" within the meaning of
section 3(l) of the FDIA will in large part
determine whether such funds are "insured deposits" under section
3(m) of the FDIA. An "insured deposit" is that portion of a
"deposit" that is insured. It is the "net amount due to any
depositor" for "deposits in an insured depository institution"
(after deducting offsets) less any part thereof that is in excess of
$100,000. 12 U.S.C. 1813(m),
1817(i), and
1821(a). Such net amount is
also determined in accordance with regulations prescribed by the FDIC.
See 12 C.F.R. Part 330. Go Back to Text
6This opinion only addresses whether the funds underlying
stored value cards constitute deposits under the FDIA. Such
determinations are relevant for assessment and insurance purposes.
There are other issues, not addressed by this opinion, which are of
great importance to the FDIC and which the FDIC will continue to
monitor as appropriate. Such issues include, but are not limited to,
consumer disclosure matters, systemic risk, security, electronic funds
transfer matters, reserve requirements, counterfeiting, monetary
policy, and money laundering. Go Back to Text
7See FDIC Staff Advisory
Opinion 93-55 (August 6, 1993) (funds held for one business day
by an agent bank selling travelers checks on behalf of a company
issuing travelers' check, are deposits of the bank under
3(l)(3) of the FDIA, until such fund are
forwarded to the company). Go Back to Text
8FDIC v. European American Bank & Trust Co., 576 F.
Supp. 950, 957 (S.D.N.Y. 1983) (Money covering a CHIPS transfer has as
specific a purpose as the money in the accounts listed by the statute.
Just like money deposited to meet maturing obligations, money backing a
CHIPS release is to insure payment to the recipient of the release.) Go Back to Text
9Seattle-First Bank v. FDIC, 619 F. Supp. 1351, 1360
(D.C. Okl. 1985) (monies wired by a loan participant to the lead bank,
at the lead's direction, for the purpose of funding a participated loan
can become deposits within the meaning of
3(l)(3) when the wired funds are not drawn by
the intended borrower. The funds were received for the special or
specific purpose of funding the participated loan). Go Back to Text
10See Seattle-First Bank v. FDIC 619 F. Supp. at
1360; FDIC v. European American Bank & Trust Co., 576 F.
Supp. at 957. Go Back to Text
11The funds underlying a stored value card in a Bank
Primary--Reserve System could, in our view, be considered to be held
for a special or specific purpose within the meaning of section
3(l)(3) of the FDIA, 12 U.S.C.
1813(l)(3), if the system is structured so
that the ultimate payee can only be one pre-determined specific party.
For example, if an institution were to issue a stored value card solely
for the purchase of long-distance telephone service from a specific
company, such funds could be considered to be held for a special or
specific purpose. Go Back to Text
12See Seattle-First Bank v. FDIC, 619 F. Supp. at
1360; FDIC v. European American Bank & Trust Co., 576 F.
Supp. at 957. Go Back to Text
13A stored value card is not in writing, not signed by the
maker, and does not contain an "unconditional promise to pay a sum
certain in money and no other promise, order, obligation or power".
See U.C.C., Section 3-104(l). Go Back to Text
14In my view the same conclusion would apply with respect to
analogizing stored value cards to travelers' checks on which the
institution is primarily liable, which are deposits under section
3(l)(1) of the FDIA, 12 U.S.C.
1813(l)(1). Go Back to Text
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