Pay News | January 2015 | www.paybefore.com
In Viewpoints, prepaid and emerging payment professionals share their
perspectives on the industry. Paybefore endeavors to present many
points of view to offer readers new insights and information. The opinions
expressed in Viewpoints are not necessarily those of Paybefore.
FDIC’s Brokered Deposits FAQs:
Implications Range from Limited to Significant for Prepaid Issuers: It All Depends
By John ReVeal and Judie Rinearson, Bryan Cave LLP
J
ust before heading out of town for the
2014 winter holidays, the FDIC on Dec.
24 released Guidance on Identifying,
Accepting, and Reporting Brokered
Deposits Frequently Asked Questions
(the FAQs), in which it formally stated
positions it has been developing over the
last few years but had not previously
committed to writing.
The implications of the FAQs depend
on a number of characteristics of the
prepaid issuer; most significantly, its
capitalization, risk profile, percentage of
brokered deposits and, perhaps, on the
types of prepaid cards it issues.
• For well-capitalized FDIC insured depository institutions (collectively, banks) with low risk profiles (specifi-
cally a Risk Category 1 rating) and with less than 10 percent of deposits classified as brokered deposits, the implications may be minimal—even including not raising the cost of FDIC insurance premiums.
• For well-capitalized banks with higher John ReVeal
risk profiles and/or more than 10 percent of deposits classified as brokered deposits, the FAQs increase the cost of doing business through higher—in some cases significantly higher—FDIC insurance premiums. It is our guess that many prepaid issuers will fall into this category based on their overall profile.
• At the far end of the spectrum, the implications for undercapitalized banks are extremely significant and unfavorable—one could possibly say “career ending.”
As in any complex document, there are
some ambiguities in the FAQs and time
will tell how those will play out. But,
what’s clear is that for many banks, the
FAQs raise the cost of doing business,
which will (or should) precipitate a review
of business models. Further, banks must
consider that the need to reclassify
prepaid deposits as brokered may have
ramifications beyond their prepaid portfo-
John ReVeal and Judith Rinearson, who lead Bryan
Cave’s payments group, are partners in the firm’s Washington, D.C., and New York City offices, respectively. They
also are contributing editors to Paybefore and frequent
contributors to and resources for Pay Gov. John and
Judith may be reached at [email protected]
Judith Rinearson and [email protected]
lios per se. For example, reclassification
may affect a bank’s contingency funding
In Brief
The FDIC’s FAQs on brokered deposits
affect banks in prepaid in the following
ways:
1. Banks that are less than “well capitalized,” as determined under regulations issued by the bank’s federal regulator, would need to immediately close prepaid accounts considered to be brokered deposits, unless the FDIC grants a waiver.
2. If a bank’s ratio of all brokered deposits (including prepaid
accounts) to non-brokered deposits exceeds 10 percent, the bank’s FDIC insurance assessments would increase by as much as 10 basis
points.
3. In most situations, prepaid cards offered through program managers or sold by retailers or distributed by third parties would be considered brokered deposits.
4. Payroll cards, health savings accounts (HSAs) and government benefit cards could potentially be treated as brokered deposits given the involvement of employers or insurance companies in “connect-
ing” the cardholder with a bank.
1
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FDIC’s Brokered Deposits FAQs
plan and compliance with the proposed
minimum liquidity coverage ratio, if
applicable. And, it’s possible that such
changes may necessitate amending call
reports. Every prepaid issuer must review
the FAQs carefully in light of its specific
situation and prepaid products, and
determine its required next steps.
This Viewpoint focuses largely on two
areas; (1) the effects of the FAQs on
undercapitalized banks and (2) whether
it’s possible that some underlying prepaid
card deposits are not brokered deposits
under the FAQs. We also offer “Possible
Courses of Action” below.
Guidance = Rule of Law
Before addressing the legal analysis that
explains the implications of the FAQs, we
must point out that the FDIC characterizes its publication as “guidance,” but the
effect is a rule of law and that law is
effective immediately.1 This is not guidance a bank can interpret and apply in its
judgment; it’s a statement that most
prepaid card accounts are now considered
brokered deposits, with the attendant
[The FAQs are] a statement
that most prepaid card
accounts are now considered
brokered deposits, with the
attendant ramifications.
ramifications. The FDIC has made it clear
that the FAQs are not subject to debate;
however, the opportunity may exist to
make the case that deposits underlying
certain types of prepaid cards do not
belong in the brokered deposits category.
The Brokered Deposit Rules and
Consequences
Under Section 29 of the Federal Deposit
Insurance Act (12 U.S.C. § 1831f) and its
implementing regulation at 12 C.F.R. §
337.6, a bank that is only “adequately
capitalized” and not “well capitalized”
may not accept, renew or roll over any
brokered deposit unless it has been
granted a waiver by the FDIC. (Our
experience has been that such waivers are
rarely granted.) Moreover, an “undercapitalized” bank simply may not accept,
renew or roll over any brokered deposit,
and the FDIC is not authorized by statute
to grant waivers.2 As a consequence, as
soon as a bank suffers economic difficulty,
the bank must start shedding its brokered
deposits, typically at a time when it most
needs those deposits.
Having brokered deposits also can
result in an increase in the bank’s FDIC
insurance assessments. Banks whose ratio
of brokered deposits to other domestic
deposits is greater than 10 percent can be
subject to up to a 10-basis point increase
in insurance assessments, depending on
the institution’s size, capital and other risk
characteristics.3 A bank with a significant
prepaid card program, therefore, could
find the program to be more expensive
than in the past if those accounts are
deemed to be brokered deposits.
By regulatory definition, a “brokered
deposit” is any deposit obtained, directly
or indirectly, from or through the mediation or assistance of a deposit broker. A
“deposit broker” includes any person
engaged in the business of placing deposits, or facilitating the placement of
deposits, of third parties with insured
depository institutions, or the business of
placing deposits with insured depository
institutions for the purpose of selling
interests in those deposits to third parties.4 There are a number of regulatory
exceptions to this definition, but the FDIC
applies these exceptions very narrowly. Of
particular importance here, one exception
is for an agent or nominee whose primary
purpose is not the placement of funds
with depository institution. While one
might logically think that this exception
would apply to program managers and
While one might logically think
that this exception for agents
or nominees whose primary
purpose is not the placement
of funds on deposit at banks
would apply to program
managers and retailers that
sell prepaid cards as part
of a general retail business,
the FAQs tell us the FDIC
disagrees with that view.
retailers that sell prepaid cards as part of a
general retail business, the FAQs tell us
the FDIC disagrees with that view.
The FAQs and Implications for
Prepaid
A significant issue raised by the FAQs
is that prepaid card accounts, if considered to be brokered deposits, would need
to be closed “immediately” upon a bank
becoming less than well capitalized. In the
past, banks could hope for some relief
from the brokered deposit burdens over
time because certain deposits would cease
to be brokered deposits in some circumstances, such as when a certificate of
deposit (CD) matures and is renewed
without broker involvement. The FAQs
expand the meaning of broker involvement and apply the concept to checking
and other accounts in addition to CDs.
Those non-CD accounts, apparently
including prepaid accounts, are treated
under the FAQs as renewing every day,
meaning that a bank could be required to
close the prepaid accounts on the day after
it becomes less than well-capitalized if the
FDIC does not provide a waiver.
As noted above, a bank that is not well
capitalized cannot accept, renew or roll
over any brokered deposit unless the FDIC
2
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FDIC’s Brokered Deposits FAQs
grants a waiver. Since at least 1992,
however, the FDIC has taken the position
that a brokered CD is no longer brokered
and, therefore, can be renewed, provided
it is renewed without any involvement of
the original or any other deposit broker.5
At that time, the FDIC did not explain
what might constitute “involvement,” but
some banks were told in recent years that
the payment of residual fees to the broker
during the term of the account would
cause the account to continue to be a
brokered deposit.
The FAQs now state that “any type of
involvement by the third party will be
sufficient to qualify the renewed account
as a brokered deposit.” This would include
payment of any “renewal fee” to the third
party, as well as “the actual holding of the
account in the name of the third party (as
agent or custodian for the owner or
owners).”6 The irony is that the FDIC itself
instructed banks and their program
managers to set up prepaid accounts in
the name of the third party as agent or
custodian to have pass-through insurance,
which under the FAQs now causes the
accounts to be brokered:
The irony is that the FDIC itself
instructed banks and their
program managers to set
up prepaid accounts in the
name of the third party as
agent or custodian to have
pass-through insurance, which
under the FAQs now causes
the accounts to be brokered.
In some cases, in an agency or custodial
capacity, the distributor of the access
mechanisms (or agent on behalf of the
distributor) might open a pooled
account for all holders of the access
mechanisms. In such cases, the FDIC
may provide ‘‘pass-through’’ insurance
coverage (i.e., coverage that ‘‘passes
through’’ the agent to the holders). See
12 CFR 330.7. Such coverage is not
available, however, unless certain
requirements are satisfied. First, the
account records of the insured depository institution must disclose the
existence of the agency or custodial
relationship. See 12 CFR 330.5(b)(1).
This requirement can be satisfied by
opening the account under a title such
as the following: ‘‘ABC Company as
Custodian for Cardholders.’’7
Another basis for finding “involvement” by the third party is if the broker
has “continued access to account information,” such as the balance of the account.8
Since program managers frequently
provide customer service including
responding to cardholders’ balance
inquiry requests, this too directly affects
many prepaid card programs.
To the extent that prepaid accounts
held by a bank that uses a program
manager are brokered deposits, it would
seem likely that those accounts would
continue to be brokered deposits for all
time under many such programs. We
believe that some program managers do
hold the funds in their name as agent or
custodian for the cardholders, and many
program managers participate in the
processing of these accounts and, therefore, know account balances at all times.
This particular FAQ might be construed as applying only to CDs, given that
one ordinarily thinks of renewals or
rollovers occurring only for CDs. Another
FAQ, however, states that a bank that
ceases to be well capitalized must immediately close brokered deposit accounts
that never mature or renew (such as an
interest bearing checking or savings
account).9 Unlike CDs that have a fixed
maturity date and cannot be closed
without an early withdrawal penalty,
What You Should Do
1. If you’re a well-capitalized FDIC-
insured bank that issues prepaid cards, you will have to comply by designating deposits underlying prepaid cards that have been generated with the assistance of third-party program managers as brokered deposits and pay the higher insurance assessment, if applicable.
2. To the extent your well-capitalized bank has prepaid deposits that might fall in a “gray” area (payroll, reward, government or HSA cards), you should contact your regional FDIC officer for additional guidance.
3. If you are an adequately capitalized bank that issues prepaid cards, you need to apply for a waiver from the FDIC. Contact your regional FDIC officer for guidance on the process.
4. If you are unhappy with this guidance, you should consider contacting your U.S. Senator or Representative to express your concerns. You might also consider joining a trade association, such as the Network Branded Prepaid Card Association, as an effective means of bringing attention to your issues. See www.nbpca.org.
checking and regular savings accounts
allow daily withdrawals and can be closed
at any time. Implicitly, therefore, the FDIC
is stating that these checking and non-CD
savings accounts renew every day for
purposes of the brokered deposit regulation, thus triggering the rule that a bank
that is not well-capitalized cannot “renew”
any brokered deposit.10 This theory would
seem to apply equally to prepaid card
accounts, since they, too, can be closed at
any time by the consumer.
Accordingly, if the prepaid program is
structured such that a program manager
3
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FDIC’s Brokered Deposits FAQs
or retailer is a deposit broker, those
accounts would need to be closed immediately upon the bank becoming less than
well capitalized. The only exceptions
would be if the program manager has no
involvement whatsoever with the accounts
after they are opened, which we expect
will very rarely be the case, or unless the
bank is adequately capitalized and
receives a rare waiver from the FDIC.
The definition of deposit broker
includes those persons in the business of
“facilitating the placement of deposits,” as
noted above. In 1992, the FDIC latched on
to this phrase and asserted that in “common usage” facilitate means “to make easy
or less difficult.”11 This approach gave the
FDIC all it would need in the future to
declare any deposit-related activity to be
deposit brokerage, unless a clear regulatory exception would apply.
The FAQs indicate an even broader
approach by the FDIC to defining “facilitate.” The FDIC notes that the definition
of deposit broker is “very broad” and
“facilitating” is “interpreted broadly” to
include actions “to connect” banks with
potential depositors.12 “Any actions that
connect” a bank with potential depositors
may be considered as facilitating the
placement of deposits.13
For example, marketing companies
that receive volume-based fees are defined
as deposit brokers in the FAQs because
they connect the bank with new account
holders.14 Likewise, companies that
design deposit products for banks are not
necessarily deposit brokers, but they
would be deposit brokers if they also
market the products in exchange for
volume-based fees.15 At the same time,
the absence of fees or other direct compensation does not necessarily change the
conclusion, depending on other factors.16
On the basis of these FAQs alone, it
appears that the FDIC could readily treat
many or most prepaid program managers
as deposit brokers. Program managers
often assist the bank in designing the
products. They also often assist the
bank in establishing contracts with
retail establishments to sell the
cards, thus arguably providing a
form of marketing. And, many
program managers provide
marketing materials or otherwise
market the products to consumers.
Because a program manager might
naturally be compensated based on
the number of prepaid accounts
because the volume of accounts
corresponds to the volume of work
needed to manage those accounts,
these facts taken together could
provide a basis for the FDIC to
conclude that the program manager is connecting depositors with
banks for a fee, thus “facilitating
the placement of deposits.”
The FAQs also indicate that the
sales of prepaid accounts through
any third-party retailer would
cause the accounts to be brokered
deposits. The retailers are “connecting” the depositor with the
bank, and retailers are generally
paid a fee or commission for each
card that they sell, thus operating
under a volume-based fee scheme.
As if this is not troubling
enough, the employer providing a
payroll card program could be said
to be “connecting” its employees
with the bank as depositors.
Although such employers might
rarely be compensated by the bank
for the accounts, the FAQs and
prior FDIC Interpretive Letters
state the FDIC’s view that this is
not necessarily dispositive to the
brokered deposit question.17
HSAs present the same concerns. When an employer or health
insurer offers a high-deductible
health insurance plan, that
employer or insurer typically will
refer the consumer to a bank that
will establish the HSA. The
Why the FDIC Eschews
Brokered Deposits
The FDIC believes brokered deposits (especially
contrasted to core deposits) correlate with
higher levels of nonperforming loans and overall
riskier behavior, leading to a higher probability
of bank failure. On July 8, 2011, the FDIC
published a Study on Core Deposits and
Brokered Deposits (the Study), as mandated by
the Dodd-Frank Act. The Study found:
• “On average, brokered deposits are also correlated with higher levels of asset growth, higher levels of nonperforming loans and a lower proportion of core deposit funding. All of these factors contribute to a higher likelihood of bank failure.”23
• “[Brokered deposits] can represent a consis-
tent and heavy funding source to support unsound or rapid expansion of loan and investment portfolios.”24
• “On average, banks that use brokered deposits have higher nonperforming loan ratios than banks that do not use brokered deposits, and the more a bank relies on brokered deposits, the higher its nonperforming loan ratio three years later. The association between brokered deposits and higher nonperforming loan ratios suggests that institutions that are willing to use riskier funding sources are also willing to invest in higher risk loans.”25
This is in contrast to the FDIC’s view of core
deposits:
•“Core deposits have historically been categorized as stable, less costly deposits obtained from local customers that
maintain a relationship with the institu-
tion, while brokered deposits are consid-
ered volatile, interest rate sensitive deposits from customers in search of yield.”26
•“FDIC research also finds that higher core deposits are associated with more conservative lending practices and are associated with lower levels of nonper-
forming loans three years later.”27
4
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FDIC’s Brokered Deposits FAQs
employer or insurer might even provide
the consumer with the bank’s account
application or marketing materials.
Clearly the employer or insurer in these
cases is “connecting” the customer with
the bank. This in itself could cause the
accounts to be brokered deposits under
the FAQs. Some of these companies might
also have their own deposit or loan
arrangements with the bank, perhaps at
favorable rates for referring customers to
the bank for HSAs, making it even more
likely that the FDIC would treat the
accounts as brokered deposits.
Are There Any Useful Exceptions?
Given the negative implications of the
FAQs for prepaid accounts, including
payroll accounts and HSAs, the question
is whether there are any strong bases to
argue that the accounts are not brokered
deposits. As we discussed above, there are
certain exceptions to the definition of
deposit broker. Almost all of these
exceptions would be inapplicable to a
typical bank’s prepaid card program.
The one exception that might, at first,
seem applicable is for an “agent or nominee whose primary purpose is not the
placement of funds with depository
institutions.” The FDIC, however, has
historically interpreted this exception very
narrowly,18 considering whether there is
any “substantial purpose” for the program
other than the placement of funds in
deposit accounts or obtaining deposit
insurance.19 If the FDIC cannot be
persuaded that there is a substantial
purpose for the program other than the
placing of deposits, the accounts established through the program will be
brokered deposits if they are generated
through the activities of a third party.
The FAQs continue this trend to the
disadvantage of the prepaid industry.
While the plain meaning of “substantial
purpose” would appear to open the door
for the vast range of other substantial
purposes served by prepaid card programs
(providing access to financial services for
the unbanked: replacing paper checks and
reducing costs to businesses and governments; offering an inexpensive and
convenient means to pay employees) the
FDIC has taken a hard line, with minimal
explanation. The FAQs state that the
primary purpose exception generally will
not apply to companies that distribute
prepaid cards that provide access to funds
at banks.20
While this FAQ stated that the result
would depend on the circumstances, it is
unclear what circumstances would lead to
a more favorable result, particularly in
view of the next FAQ that states that the
primary purpose exception will not apply
to retail stores or other venues that sell
prepaid cards to members of the public.21
This FAQ is somewhat ambiguous, so is
worth quoting in full for further discussion:
E8. Does the primary purpose exception apply to companies that sell or
distribute general purpose prepaid
cards?
No. Some companies operate general
purpose prepaid card programs, in
which prepaid cards are sold to members of the public at retail stores or other
venues. After collecting funds from the
cardholders, the retail store or the card
company (as agent for the cardholders)
may place the funds into a custodial
account at an insured depository
institution. The funds may be accessed
by the cardholders through the use of
their cards.
The retail stores and the card companies
that sell or distribute general purpose
prepaid cards (or similar products) are
not covered by the primary purpose
exception. Rather, in placing the
cardholders’ funds into custodial
accounts at insured depository institutions, such companies (or the retail
stores that may be involved in the
placement of the deposits) qualify as
deposit brokers. Therefore, the funds
qualify as brokered deposits.
This FAQ seems to reflect a misunderstanding by the FDIC of how prepaid card
programs function when cards are sold by
retailers. The FAQ suggests that the
retailer is sending the funds from sales
directly to custodial accounts for the
cardholders. We believe, more commonly,
that retailers send funds to a reserve or
other account at the bank, and the bank
then moves the funds to the pooled
cardholder accounts. Whether this
distinction would make any difference to
the FDIC given its obvious aim to apply
the brokered deposit rules to the prepaid
card industry is unclear, but it is at least
worth pursuing with the FDIC.
In fact, we would argue that there is
ample room for the FDIC to conclude that
retailers that sell any number of issuer’s
prepaid cards are not doing so for the
substantial purpose of placing deposits or
facilitating the placement of deposits.
Their primary purpose is only to sell
products at retail, some of which happen
to be prepaid cards. Also, as a policy
matter, none of the presumed horrors of
brokered deposits seem applicable here.
There is no reason to assume that prepaid
accounts sold through retailers are any
more volatile than those sold directly
from bank branches or on the bank’s
Website. There is no reason to believe that
banks that sell prepaid cards through
retailers are necessarily more inclined to
use the funds for risky loans or investments, compared to banks that sell the
accounts directly. If anything, the retail
sale mechanism allows a bank to provide
the cards in a more cost-effective manner
than doing so through its branches, where
more employees will be required to handle
the volume, or through its Website, where
more costs are incurred to develop and
maintain the site.
5
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FDIC’s Brokered Deposits FAQs
As for program managers, based on
our observations from regulatory examinations, the FDIC has long been suspicious of the role of program managers,
fearing that program managers pose a
“rent-a-bank” threat to depository
institutions. These FAQs appear to
represent a new way for the FDIC to
discourage the use of program managers.
Possible Courses of Action
Nevertheless, factors that might help to
persuade the FDIC in individual cases
that the program manager is not a deposit
broker might include:
1. Instead of holding pooled funds in a custodial account under the program manager’s name, have the bank hold the pooled funds in a bank-owned custodial account.
2. Clear contractual provisions demon-
strating the bank’s ownership of the prepaid accounts and related custom-
er relationships, both during the term of the contract and in the event of termination of the contract. If the program manager has the ability to “move” the account relationships to another bank under any circumstanc-
es, this could signal “volatility” to the FDIC and make it less inclined to treat the program manager as other than a deposit broker.
3. Contractual provisions that demon-
strate that the program manager’s fees from the bank are tied to specific services relating to the accounts other than facilitating the placement of deposits. For example, clearly outlined duties for processing of accounts, handling customer communications and assisting with customer dispute resolution can make it clear that the program manager is just a traditional bank vendor and not a deposit broker.
4.If the program manager assists with marketing functions, compensation should not be tied to success but should be a flat fee for specified marketing functions. In this way, the marketing fees would more closely track the fees that all companies pay to newspapers and other mass media outlets for placing of advertisements.
5.To the extent the program manager has a role in identifying retailers that would sell the cards, the contractual arrangement should be between the bank and the retailer, and not the program manager and the retailer. This, again, more clearly reflects that the program is the bank’s program and the bank’s control over the program.
6.Program manager contracts should not tie program manager compensa-
tion to the success of the program. Service level requirements under which a program manager could be penalized for failure to meet the requirements, such as a failure to respond to all customer inquiries within a specified time, should be acceptable because that would be common for any customer service vendor. In contrast, compensation that is based on a percentage of customer fee income or average balances may provide a basis for the FDIC to conclude that the program manager is incentivized to establish more accounts, thus causing the manager to look more like a deposit broker.22
Unfortunately, it is not clear at this
time that any of these factors together or
individually would save the day, and,
perhaps, there are likely other steps that
the industry can take to strengthen the
case that at least some program managers
are not deposit brokers. We are hopeful
that industry conversations with the FDIC
will provide a path to a continuing, robust
prepaid card program that is not hobbled
by brokered deposit implications.
Every prepaid issuer must
review the FAQs carefully
in light of its specific
situation and prepaid
products and determine
its required next steps.
We are somewhat more optimistic that
the FDIC might apply the primary
purpose exception to payroll cards,
government benefit cards and HSAs, given
the obvious public policy implications of a
contrary decision. The employer’s primary
purpose is finding a cost-effective way to
distribute salary and commissions to its
employees, not to establish deposit
accounts or place funds. Even if the
employer is suggesting specified banks or
providing its employees bank account
applications, this should not undermine
the primary purpose exception. Similarly,
a state or federal government agency is
also not seeking to place deposits in
banks. As with employers, they merely are
looking for a cost-effective manner to
distribute benefits to citizens. There are
and likely will be a limited number of
banks that will issue either payroll or
government benefit cards. Those banks
that issue payroll cards, in particular, will
need to perform due diligence on the
employers before linking their cards and
reputation to the employer, and this
necessarily will mean that individual
employers will have limited options for
banks.22
Likewise, an employer or insurance
company offering an HSA option is not
doing so for the primary purpose of
placing deposits. The company is offering
the HSAs only as part of and for the
purpose of providing a high-deductible
health insurance plan to the consumer.
6
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FDIC’s Brokered Deposits FAQs
Conclusion
Like so much in prepaid, how the FAQs
will affect a particular issuer and its
prepaid business “depends”—in this case
on its capitalization, risk profile, the
percentage of brokered deposits held and
the types of prepaid products offered. And,
only the bank, along with its counsel and
financial officers, can make that determination. At the risk of wagging our finger
like a schoolmarm, we’ll point out the
obvious that it’s incumbent on the bank to
conduct the self-analysis to determine the
FAQs’ implications on its shop and then
chart a path to do what’s necessary.
Of course, one of the key necessities
goes beyond the pure prepaid environment;
it’s ensuring that the bank is well capitalized and effectively managing its risk
profile.
The FAQs are the law of the land and
unless there’s a miraculous breakthrough
at the FDIC, they are a new part of the
reality that must be incorporated into the
prepaid landscape.
Although the FAQs were issued three
weeks ago, they’re just now being examined
throughout the industry, and we’re all still
learning. If you have more to add or you
disagree with what we’re saying, let us
know. We learn from each other.
Given the nature and potential significant implications of the
FAQs from some prepaid issuers, we believe they should have
been subject, at least, to a transparent process—hearings or
public comment—before being issued in final form with an
immediate effective date. For its part, the FDIC contends that
the guidance isn’t new regulation; the requirements have been
in place and they’re simply consolidating the requirements.
1
12 C.F.R. § 337.6(b). The terms “well capitalized,”
“adequately capitalized” and “undercapitalized” have the
meanings given to each depository institution by its primary
federal bank regulator. 12 C.F.R. § 337.6(a)(3).
2
3
12 C.F.R. Part 327.
4
12 C.F.R. § 337.6(a)(2) and (5).
5
FDIC Interpretive Letter 92-69, October 23, 1992.
6
FAQ F2.
FDIC “Notice of New General Counsel’s Opinion No. 8,” 73
Fed. Reg. 67155 at 67157 (Nov. 13, 2008).
7
8
FAQ F2.
9
FAQ F5.
This is consistent with what we have heard from other
banks that are not offering prepaid, that the FDIC had been
considering a position that checking and regular savings
accounts renew every day.
10
FDIC Interpretive Letters 92-52 (August 3, 1992); 92-53
(Aug. 3, 1992); 92-60 (Aug. 17, 1992); 92-77 (Nov. 9, 1992)l
92-79 (Nov. 10, 1992); 92-84 (Nov. 20, 1992), and 92-86
(Dec. 7, 1992).
11
12
FAQ A2 and A5.
13
FAQ B2.
14
FAQ B4.
March 16, 1994, (money management affiliate of bank was a
deposit broker when directing customers to the bank, though
the company was not compensated by the bank).
18
For example, the FDIC has stated that the fact that revenues
from referring deposits represent a very small percentage of
the company’s overall revenues does not satisfy the primary
purpose standards. FDIC Interpretive Letter 90-21, May 29,
1990. Likewise, the fact that only a small percentage of a
company’s overall business activities involve placing of
deposits does not satisfy the primary purpose exception.
FDIC Interpretive Letter 93-31, June 17, 1993.
19
See, for example, FDIC Interpretive Letters 92-91, Dec. 14,
1992, (State Association of School Boards was deposit broker
when administering program formed under state law for the
deposit of public funds in banks throughout the state); 92-92,
Dec. 15, 1992, (bank was deposit broker when identifying
other banks in which to place excess deposit funds received
from municipality customer, and then placing those funds
upon the direction of the municipality); 93-14, Feb. 24, 1993,
(bank was deposit broker when obtaining CDs for customers
from other banks so that the customer would receive higher
interest rates on the accounts).
20
FAQ E7.
21
FAQ E8.
While beyond the scope of this article, we do note that an
employer is prohibited under the Electronic Fund Transfer Act
from conditioning employment on the employer establishing a
payroll card account with a particular institution. This does not
mean, however, that the employer could not offer only one
payroll card account option, so long as the employee is free to
select his own bank or receive payments of salary by
non-electronic means.
22
23
Study, page 3.
15
FAQ B5.
Study, page 34 (citing to the FDIC’s Manual of Examination
Policies.
16
FAQ A5.
25
FAQ A5 and FDIC Interpretive Letters 93-34, June 24, 1993
(financial planners promoting tuition-linked CDs to its
customers were deposit brokers, despite receiving no
compensation from the bank (referring to a prior June 17,
1993, Interpretive Letter, apparently 93-31)); and 94-15,
17
24
Study, page 39.
26
Study, page 32.
27
Study, Page 36-37.
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