Federal Deposit Insurance Corporation
550 17th Street NW, Washington, DC 20429 Division of Supervision
Stored Value Cards
TO: CHIEF EXECUTIVE OFFICER
SUBJECT: Proposed Rule on Determining When Funds Underlying Stored Value
Cards Qualify as "Deposits"
Summary: The FDIC is seeking public comment on when funds underlying stored
value cards qualify as "deposits" under the Federal Deposit Insurance Act.
Under the proposed regulation, funds placed at an insured depository
institution by a sponsoring company would qualify as "deposits." Funds
collected from cardholders in exchange for stored value cards issued by
an insured depository institution (and not issued by a sponsoring
company) also would qualify as "deposits" if the depository institution
maintains accounts or subaccounts for the individual cardholders.
The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) is
requesting comment on the attached proposed rule that would clarify the meaning of
"deposit" as that term relates to funds at insured depository institutions underlying
stored value cards. Comments are due by July 15, 2004.
A stored value card is a device that enables the cardholder to exchange the underlying
funds (i.e., the funds received by the issuer of the card in exchange for the issuance of
the card) to a merchant at the merchant's point of sale terminal. Stored value cards
were the subject of General Counsel's Opinion No. 8 (GC8), issued by the FDIC in
1996. See 61 Fed. Reg. 40490 (August 2, 1996). Through that opinion, the FDIC took
the position that the funds underlying stored value cards are not "deposits" under the
following circumstances: (1) the cards are issued by an insured depository institution (as
opposed to being issued by a sponsoring company); and (2) the insured depository
institution maintains a pooled "reserve account" reflecting the institution's liability for all
cards (as opposed to maintaining individual accounts for the individual cardholders).
GC8 did not address all types of stored value card systems. The purpose of the
proposed rule is to address new types of systems and to clarify when the funds in these
systems will qualify as "deposits."
Accounts Funded by Sponsoring Companies
A type of system not addressed in GC8 is a system in which a sponsoring company
maintains an account at an insured depository institution for the purpose of making
payments on stored value cards issued by that company (and not issued by the insured
depository institution). Under the proposed rule, the funds in such an account would be
FIL-44-2004
April 26, 2004Inactive
550 17th Street NW, Washington, DC 20429 Division of Supervision
Stored Value Cards
TO: CHIEF EXECUTIVE OFFICER
SUBJECT: Proposed Rule on Determining When Funds Underlying Stored Value
Cards Qualify as "Deposits"
Summary: The FDIC is seeking public comment on when funds underlying stored
value cards qualify as "deposits" under the Federal Deposit Insurance Act.
Under the proposed regulation, funds placed at an insured depository
institution by a sponsoring company would qualify as "deposits." Funds
collected from cardholders in exchange for stored value cards issued by
an insured depository institution (and not issued by a sponsoring
company) also would qualify as "deposits" if the depository institution
maintains accounts or subaccounts for the individual cardholders.
The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) is
requesting comment on the attached proposed rule that would clarify the meaning of
"deposit" as that term relates to funds at insured depository institutions underlying
stored value cards. Comments are due by July 15, 2004.
A stored value card is a device that enables the cardholder to exchange the underlying
funds (i.e., the funds received by the issuer of the card in exchange for the issuance of
the card) to a merchant at the merchant's point of sale terminal. Stored value cards
were the subject of General Counsel's Opinion No. 8 (GC8), issued by the FDIC in
1996. See 61 Fed. Reg. 40490 (August 2, 1996). Through that opinion, the FDIC took
the position that the funds underlying stored value cards are not "deposits" under the
following circumstances: (1) the cards are issued by an insured depository institution (as
opposed to being issued by a sponsoring company); and (2) the insured depository
institution maintains a pooled "reserve account" reflecting the institution's liability for all
cards (as opposed to maintaining individual accounts for the individual cardholders).
GC8 did not address all types of stored value card systems. The purpose of the
proposed rule is to address new types of systems and to clarify when the funds in these
systems will qualify as "deposits."
Accounts Funded by Sponsoring Companies
A type of system not addressed in GC8 is a system in which a sponsoring company
maintains an account at an insured depository institution for the purpose of making
payments on stored value cards issued by that company (and not issued by the insured
depository institution). Under the proposed rule, the funds in such an account would be
FIL-44-2004
April 26, 2004Inactive
"deposits." The insured depositor would be the sponsoring company, and not the
cardholders, unless the FDIC's requirements for "pass-through" insurance coverage are
satisfied.
Pooled "Reserve Accounts" With Individual Subaccounts
Another type of system not addressed in GC8 is a system in which an insured
depository institution - in connection with stored value cards issued by the insured
depository institution (and not issued by a sponsoring company) - maintains a pooled
"reserve account" (representing the institution's liabilities on all cards) but also maintains
individual balances or subaccounts (with each subaccount representing the institution's
liability to a particular cardholder). Under the proposed rule, the funds in the
subaccounts would be "deposits."
"Payroll Cards"
GC8 did not address "payroll cards." Under the proposed rule, funds underlying "payroll
cards" would be subject to the same rules (summarized above) applicable to other types
of stored value cards. Assuming that the funds qualify as "deposits," the insured
depositor would be the employer as opposed to the employees unless the FDIC's
requirements for "pass-through" insurance coverage are satisfied.
For more information, please contact Christopher Hencke in the FDIC's Legal Division
at (202) 898-8839.
For your reference, FDIC Financial Institution Letters may be accessed from the FDIC's
Web site at http://www.fdic.gov/news/news/financial/2004/index.html.
William F. Kroener, III
General Counsel
# # #
Attachment:
• April 16, 2004, Federal Register, pages 20558-20566
Distribution: All Insured Banks and Savings Associations
NOTE: Paper copies of FDIC financial institution letters may be obtained through the
FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC
20434 (1-877-275-3342 or (703) 562-2200).Inactive
cardholders, unless the FDIC's requirements for "pass-through" insurance coverage are
satisfied.
Pooled "Reserve Accounts" With Individual Subaccounts
Another type of system not addressed in GC8 is a system in which an insured
depository institution - in connection with stored value cards issued by the insured
depository institution (and not issued by a sponsoring company) - maintains a pooled
"reserve account" (representing the institution's liabilities on all cards) but also maintains
individual balances or subaccounts (with each subaccount representing the institution's
liability to a particular cardholder). Under the proposed rule, the funds in the
subaccounts would be "deposits."
"Payroll Cards"
GC8 did not address "payroll cards." Under the proposed rule, funds underlying "payroll
cards" would be subject to the same rules (summarized above) applicable to other types
of stored value cards. Assuming that the funds qualify as "deposits," the insured
depositor would be the employer as opposed to the employees unless the FDIC's
requirements for "pass-through" insurance coverage are satisfied.
For more information, please contact Christopher Hencke in the FDIC's Legal Division
at (202) 898-8839.
For your reference, FDIC Financial Institution Letters may be accessed from the FDIC's
Web site at http://www.fdic.gov/news/news/financial/2004/index.html.
William F. Kroener, III
General Counsel
# # #
Attachment:
• April 16, 2004, Federal Register, pages 20558-20566
Distribution: All Insured Banks and Savings Associations
NOTE: Paper copies of FDIC financial institution letters may be obtained through the
FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC
20434 (1-877-275-3342 or (703) 562-2200).Inactive