CUNA Comment Letter
Stored Value Cards
July 15, 2004
Mr. Robert E. Feldman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20429
Dear Mr. Feldman:
The Credit Union National Association (CUNA) appreciates the opportunity to respond to the Federal Deposit Insurance Corporations ("FDIC") proposed rule ("Proposed Rule") that would clarify whether the funds held at insured banks for stored value cards actually qualify as "deposits." Defining a stored value fund, as a deposit, of course affects whether or not the product would receive insurance protection under the Federal Deposit Insurance Act. Although this proposal only reflects the rules for banks and bank insurance coverage, it could eventually have an impact on credit unions for two reasons: credit unions can offer stored value cards and financial regulators sometimes seek parity among their insurance rules. As a result, this proposal could set a precedent that may affect the National Credit Union Administration and influence its rules regarding the National Credit Union Share Insurance Fund. The implications of this proposal on the credit union movement have persuaded CUNA to respond. CUNA, a national trade association, represents approximately 90 percent of the nations 9,400 state and federal credit unions.
Summary of CUNAs Position
CUNA opposes this proposal for the following reasons:
This proposal does not address or disclose the legal implications on stored value products of making them deposits for purposes of several other banking laws, including Regulation D and Regulation E.
The FDIC should study the implications of classifying stored value cards as deposits and either include these important considerations in a new proposal that undergoes public comment or decide to withhold premature regulation of stored value cards altogether.
For all the reasons above, the FDIC proposal to require banks to provide consumer disclosures regarding whether certain stored value cards qualify for insurance is premature.
This proposed rule would clarify the meaning of the term "deposit" as that term relates to the funds at insured banks that underlie stored value cards. Under the proposed regulation, the funds would be "deposits" unless (1) the bank itself has issued the cards against a pooled "reserve account" representing multiple cardholders; and (2) the bank maintains no supplemental records or sub-accounts reflecting the amount owed to each cardholder. In other words, the funds underlying stored value cards are deposits as long as they are received by a bank that can track the funds to individual cardholders using a sub-account system. The proposal also requests comments on whether a rule ought to mandate that financial institutions disclose to customers the insured or non-insured status of the stored value cards that they offer to the public.
The FDIC admits that the proposal as drafted does not consider the numerous legal implications that arise when stored value cards are classified as deposits. According to the FDIC, "There are a number of issues not addressed in this proposed rulemaking. . . such issues include, but are not limited to systemic risk, security, electronic fund transfer matters, reserve requirements, counterfeiting, monetary policy and money laundering." If the FDIC wants to present a proposal with such far ranging issues, then it should wait to do so until after it has studied the implications of those issues on the banking system and presents such information in a proposal presented to the public for comment
In particular, the FDIC does not address the legal implications for making stored value cards deposit products under Regulation D. For example, Regulation D requires financial institutions to maintain reserves against transactions accounts, which are defined by Regulation D to mean "a deposit or account from which the depositor or account holder is permitted to make transfers or withdrawals . . ." Thus classifying a stored value card as a deposit account could mean that a financial institution has to maintain reserves against that account for up to 10 percent of the account, depending on the institutions amount of net transaction accounts. This result could dramatically affect banks, yet the FDIC provides no guidance on whether a stored value card could be a transaction account. Consequently, CUNA opposes the proposal because this omission creates uncertainty for financial institutions.
The FDIC also has not studied how the proposal affects the treatment of stored value cards under Regulation E, which establishes the requirements for electronic fund transfers from a consumers account. Regulation E defines account to mean a "demand deposit (checking), savings, or other consumer account held directly or indirectly by a financial institution." As a result, classifying a stored value card as a deposit account could trigger Regulation E and affect the disclosure requirements, periodic statement requirements, and error resolution requirements for stored value cards among other things. CUNA opposes this proposal because whether a stored value card is a Regulation E consumer account, is not addressed in this proposal and this omission creates uncertainty for financial institutions.
As the Federal Reserve Board oversees Regulation D and Regulation E, the FDIC should work with the Federal Reserve to decide whether or not a comprehensive proposal regarding the treatment of stored value cards is advisable. The FDIC could follow the lead of the Federal Reserve Board, which has declined to issue a final regulation on the treatment of stored value cards under Regulation E.
For all the reasons stated above, an FDIC proposal that might require banks to provide consumer disclosures regarding whether certain stored value cards qualify for insurance is premature, and should be shelved and considered within the context of another, more thorough proposal that discusses the far-reaching implications of treated stored value cards as deposit accounts.
CUNA opposes this proposal because it does not consider the far-reaching policy and legal implications of classifying stored value cards as deposit accounts. If you have any further questions, please contact CUNA's Senior Vice President and Associate General Counsel Mary Dunn or me at (202) 638-5777.
Michelle Q. Profit
Assistant General Counsel