FDIC Seeks Public Comment on Stored Value Cards as "Deposits;" NCUA Not to Pursue Yet

ALEXANDRIA, Va.-The Federal Deposit Insurance Corporation has asked the public for their opinion on whether stored value card funds should qualify as deposits under the Federal Deposit Insurance Act. Financial Institution Letter FIL-44-2004 states that the FDIC has proposed that funds placed in a bank or thrift by a sponsoring company would qualify as a deposit. Additionally, funds collected from cardholders in exchange for cards issued by insured institutions that maintain accounts, or subaccounts under pooled “reserve accounts,” for cardholders would count as deposits under the proposed regulation. NCUA often seeks to maintain parity with the FDIC on insurance coverage issues. According to NCUA Public Affairs Specialist Cherie Umbel, the agency is “reviewing the issue and considering it” but does not have plans to introduce any proposed regulations in the next few months. FDIC defined a stored value card as “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.” Relying on its General Counsel’s Opinion No. 8 (GC8), the FDIC determined for its proposal that these funds are not “deposits” when: * the cards are issued by an insured depository institution (as opposed to being issued by a sponsoring company) and * 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). But GC8 did not address all types of stored value cards. The new proposal would also address payroll cards, which were not included in GC8. These items would be subject to the same rules as those for stored value cards. Assuming the funds qualify, the insured depositor would be the employer “unless the FDIC’s requirements for “pass-through” insurance coverage are satisfied,” FIL-44-2004 read. The deadline for public comment to the FDIC to clarify the meaning of the term “deposit” is July 15.