4000 - Advisory Opinions
Deposit Broker: Is an Accounting Service For a Health Care Facility Included Under 12 U.S.C. 1831f
August 25, 1994
Valerie J. Best, Counsel
Thank you for your letter dated August 4, 1994. You asked if XYZ Company ("XYZ") is a "deposit broker" as that term is defined at 12 U.S.C. 1831f and the implementing regulations at 12 C.F.R. 337.6.
Description of Datacare's Activities
I understand XYZ's activities to be as follows. XYZ provides accounting services to health care facilities (i.e., nursing homes) and their residents who receive Medicaid payments. XYZ teams with an FDIC-insured depository institution, which then offers a single NOW account to each nursing home. The nursing home is the fiduciary agent for the NOW account. Each resident in the nursing home has a sub-account within the NOW account. The funds in the sub-accounts represent the individually-owned monies that each resident in the nursing home facility is allowed to retain for personal needs under Medicaid rules. The health-care facility maintains its own funds in an associated business checking account.
XYZ has developed specialized computer programs, networks and procedures to handle these accounts. It is my understanding that the individual sub-accounts are quite small in amount ($35 or so). The nursing homes have a fiduciary duty to properly account for the resident's personal funds. The amounts are so small, however, that it is not cost-effective for the nursing home or the financial institution to maintain records showing each individual's interest in the pooled funds. XYZ tracks payments made to the nursing home, and transmits aggregate record-keeping data to the financial institution.
As a resident spends funds from his or her personal sub-account (for candy, magazines, hair cuts, clothing, etc.), a signed receipt from the resident or the resident's legal guardian is submitted to XYZ. XYZ makes record-keeping entries allocating the funds from the resident's personal sub-account to the facility's account. XYZ transmits the record-keeping information to the depository institution so that the facility's disbursement account and the overall NOW account figures may be adjusted on the books of the bank.
It is my understanding that almost all funds payable to the nursing home are sent by direct deposit to the depository institution. Thus, for the most part, XYZ simply makes record-keeping entries: it allocates funds between the subaccounts and the nursing homes' accounts, and transmits that data to the financial institution. In some cases, however, the nursing home is paid by check. In those cases, the nursing home sends the checks to XYZ for handling. In turn, XYZ deposits the checks with the depository institution.
The nursing homes are not required to use any other services of the financial institution. The nursing homes sign separate service agreements with XYZ and the financial institution. They pay the financial institution service fees and charges for the business accounts and services provided. XYZ is paid by charges and fees billed directly to the health-care facilities, and receives no direct, or indirect, compensation from the financial institution. The financial institution does the actual account posting and bank processing for the accounts.
The term "deposit broker" is defined to include any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions. 12 U.S.C. 1831f(g)(1)(A). Deposit brokers are prohibited from soliciting or placing any deposit with an insured depository institution unless the deposit broker has provided the FDIC with written notice that it is a deposit broker.1
For the most part, XYZ's activities do not appear to fall within the definition of deposit broker. Rather, they appear to be ministerial and administrative functions. XYZ performs bookkeeping functions for the nursing homes, and sorts and routes documents to the financial institution. Based upon my understanding of the services provided by XYZ, it appears that XYZ is not a "deposit broker" when it calculates how funds paid to the nursing home should be allocated between the sub-accounts and the nursing home's account, and transmits that data to the depository institution for entry on the books of the depository institution.
This opinion is based upon the facts as presented in your letter dated August 4, 1994. Should the facts change in the future or some fact be present of which we are not currently aware, the substance of this opinion may change. The views expressed in this letter are those of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal interpretations of its rules, but only pursuant to rule-making proceedings. The FDIC does not issue formal interpretations in the form of individual letters or rulings on particular cases.
112 U.S.C. 1831f--1(a). 12 C.F.R. 337.6(h). Go back to Text