By Bergman, Hannah
American Banker , Vol. 169, No. 148
Large financial services companies have objected to a Federal Deposit Insurance Corp. proposal that would expand government backing of stored-value cards, but small banks and thrifts say they support it.
Visa International, Bank of America Corp., Wells Fargo & Co., Wachovia Corp., and the American Bankers Association complained in comment letters due last month that the proposal could stifle the growth of these increasingly popular alternatives to cash and would raise complicated regulatory issues.
The FDIC "fails to recognize the possible unintended consequence" on other federal laws and regulations dealing with accounts and deposits, wrote Ted Teruo Kitada, a Wells vice president and senior counsel.
However, officials of the Independent Community Bankers of America and America's Community Bankers said they welcomed the proposal, because new products have made more guidance necessary.
When it issued the proposal in April, the FDIC said it was trying to keep up with developments in the market. Since a 1996 general counsel opinion on which types of stored-value cards get deposit insurance coverage, the industry has introduced payroll cards and other products the opinion did not address, the agency said.
The proposal said the FDIC wants to "clarify the meaning of deposit as that term relates to funds at insured depository institutions underlying stored-value cards." Money on such cards (including payroll and other types introduced since 1996) would generally be defined as deposits that would be guaranteed for up to $100,000 per account, but the money would not be insured if it were held in a pooled account and the issuer did not maintain records of subaccounts for each cardholder.
Gift cards issued by retail outlets would not be insured, the proposal said.
An FDIC spokesman said it was two to three months away from issuing a final rule.
Several commenters said the agency was acting too soon.
"Given the developing state of this market, the proposal is premature and could have unintended consequences," said Cristeena G. Naser, a senior counsel for the ABA. "Rather, we believe that a broad survey of the types and structures of stored-value products currently available, including the potential application of numerous federal and state laws and customer expectations, is a necessary first step before rulemaking is considered."
Bank of America, Visa, and Wells said changing the definition of "deposit" could subject stored-value cards to other federal rules, such as the reserve requirements of Regulation D or the disclosure requirements of Regulation E. …