July 23, 1997
Judith Rinearson, Group Counsel
American Express
Travel Related Services Company, Inc.
General Counsel's Office
American Express Tower
World Financial Center
New York, NY 10285-4900
Dear Ms. Rinearson:
We apologize for the delay in responding to your letter. In part,
the reason for our delay is because we recognize that this is
an important matter and, even though we have previously considered
it, we wanted to review the issues you raised thoroughly.
You have asked whether credit unions may sell prepaid phone cards.
We have addressed this issue previously in a letter from Associate
General Counsel Richard S. Schulman to Richard E. Byer, dated
November 27, 1995. A copy is enclosed. That letter directly
addresses your contention that FCUs have the authority to sell
prepaid phone cards under both the express and incidental authority
provisions of the Federal Credit Union Act (the Act). 12 U.S.C.
Ё1757(12), 1757(17). Please note that our answer to
your letter applies only to federal credit unions (FCUs). State
law governs the authority of a state-chartered credit union to
engage in a particular activity.
At this time, our view continues to be that FCUs have neither
express nor incidental authority to provide prepaid phone cards.
We believe prepaid phone cards, to be used as you describe, are
quite different than checks and money orders, which are expressly
authorized by the Act. 12 U.S.C. �57(12). Unlike checks
and money orders, phone cards can transfer funds to only one recipient
and they are not negotiable instruments.
We are not convinced that selling prepaid phone cards to members is necessary to an FCU's ability to carry on its business of serving members and, therefore, do not find the activity permissible under the incidental powers clause of the Act. 12 U.S.C. �57(17). You contend that prepaid phone cards are "similar to other prepaid products routinely sold at credit unions including but not limited to travelers cheques, money orders, subway tokens and postage stamps." As noted above, FCUs have express authority to sell travelers checks and money orders. We agree that prepaid phone cards are similar to subway tokens and postage stamps and note that we have consistently stated that FCUs do not have the incidental authority to sell such products. We have permitted
FCUs to sell subway tokens and postage stamps but only as part
of a group purchasing activity. See 12 C.F.R. Part 721.
FCUs may sell prepaid phone cards as part of a group purchasing
activity but, as such, they may not earn a profit or a commission
from the sale. We are considering reexamining the scope of the
incidental powers clause and whether more products and services
can be considered incidental to an FCU's business. Any such reexamination
will include an evaluation of prepaid phone cards.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/LH:bhs
SSIC 3800
96-1202
Enclosure