Deposit Taking
Issue
Whether the sale or issuance of “stored value” or prepaid cards at places like grocery stores and shopping centers should be deemed a deposit-taking activity.
NBPCA Position
The NBPCA believes that the sale or issuance of stored value or prepaid products should not be deemed a deposit-taking activity. Such treatment would likely result in the prohibition of the sale or issuance of such products by non-banks, such as retail stores, adversely impacting millions of consumers who would no longer be able to conveniently purchase and add funds to the cards. NBPCA supports a framework where there are fewer—not more—barriers to access for consumers in the financial services marketplace.
Explanation
Some states have claimed that issuing and reloading prepaid products should be treated as the acceptance of deposits. This argument emerged in part due to proposed regulations issued, but not adopted, by the Federal Deposit Insurance Corporation (FDIC) that would have treated funds held for payment of prepaid card obligations as “deposits” for purposes of deposit insurance coverage.
While such treatment by the FDIC may make sense for FDIC insurance and assessment purposes, the rationale does not translate for purposes of other laws and regulations that apply to the field of banking. For example, under federal and many state banking regulations, the term “branch” includes any place at which “deposits are received… or money lent.” Some states have argued that if the funds underlying a prepaid card might be treated as a “deposit” for deposit-insurance purposes, then by implication the locations where prepaid cards are issued must be engaged in deposit-taking activities, meaning that they are acting as a bank branch.
The consequences of this basic analogy are far-reaching and seriously impact the utility of the products to consumers, especially unbanked consumers. If loading funds on a prepaid card is treated as a deposit-taking activity, every retail location would face having to apply to become a bank branch or being precluded from selling or loading prepaid cards. Currently, there are approximately 200,000 non-bank locations across the United States where consumers can purchase a prepaid card or load funds to the card. By analogy, this would be the equivalent of requiring every location that accepts credit cards to apply to become a bank branch because they “lend money” to consumers who use such cards. This is not a desired result.
The NBPCA supports legislative findings that the purchasing and loading of prepaid cards are not “deposit taking” activities because treating the loading of funds as “deposit taking” would dramatically decrease access to these important products for consumers who need them most, raising a new and unnecessary roadblock to the financial mainstream.
Contact for Further Information: