FDIC CLARIFIES CONDITIONS FOR INSURANCE COVERAGE OF STORED-VALUE CARDS; SETS
PUBLIC HEARING ON ELECTRONIC PAYMENT SYSTEMS ISSUES
FOR IMMEDIATE RELEASE PR-53-96 (7-16-96)
Media Contact: Robert M. Garsson (202-898-6993)
The FDIC's Legal Division issued guidance today to help
banks and thrifts decide whether the stored-value cards they issue
qualify for federal deposit insurance.
Stored-value cards, which currently are being issued by only
a few institutions, look like a credit or ATM card. However, the
cards actually store electronic value, on either a magnetic stripe or
a computer chip, that make them a convenient alternative to cash.
The cards can be used to pay for meals, retail goods and other
purchases, and funds can be added or deducted from the cards as
The question addressed by the FDIC is whether the funds
represented by the cards are insured deposits under the law.
In a General Counsel opinion letter, the FDIC concluded
that in most cases stored-value cards are not protected by deposit
insurance. That's because the issuing institution would typically
maintain a single pooled account to hold the funds represented by
all their customers' stored-value cards. However, a banking
institution could design a stored-value card in such a way that the
underlying funds would be insured. For example, if the funds
represented by the card are maintained in the customer's own
account until a payment is made, deposit insurance would apply. All
institutions would be required to tell customers whether the card
they are buying is insured or not.
Most stored-value cards in use today have maximum values
of about $100, meaning that a consumer's loss in the event of a
bank failure is relatively small. However, the role of deposit
insurance could take on more significance if individuals begin to use
cards for larger purchases and maintain account balances of
hundreds or thousands of dollars. In addition, the insurance
question is important to banking institutions because it affects the
amount of insurance premiums they pay to the FDIC.
The FDIC also decided to seek public comment on a variety
of electronic payment system issues, including concerns raised by
Internet banking and the use of electronic cash. In addition, the
FDIC asked for comment on whether the agency should, by future
regulation, determine that stored value cards are entitled to deposit
insurance if they are treated as insured deposits by general usage.
In considering whether to promulgate such a regulation, the FDIC
would weigh a number of policy issues, including the level of public
confidence in the new payment systems, consumer expectations,
and the similarities between stored-value cards and other payments
Written comments on the notice will be due 90 days after it
appears in the Federal Register. In addition, the FDIC is planning
to hold a one-day public hearing to solicit additional views from
bankers, consumer organizations and others.
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Congress created the Federal Deposit Insurance Corporation in 1933
to restore public confidence in the nation's banking system. The
FDIC insures deposits at the nation's 12,000 banks and savings
associations and it promotes the safety and soundness of these
institutions by identifying, monitoring and addressing risks to
which they are exposed.
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at gopher.fdic.gov. They may also be obtained through the FDIC's
Public Information Center, 801 17th St. NW, Room 100, Washington,
DC ((703) 562-2200).