FDIC Guidance Sheds Light on Prepaid Cards, Brokered Deposits (Jan. 6, 2015)
The FDIC has issued guidance to promote consistency by insured depository institutions in identifying, accepting and reporting brokered deposits. The guidance, which is in the form of “frequently asked questions,” addresses prepaid cards.
Brokered deposits are deposits obtained, directly or indirectly, from or through a deposit broker, as defined by the FDIC. A deposit broker is a person who places deposits, or facilitates 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. The definition of deposit broker is subject to a list of exceptions, and prepaid is included in the list. Below are the prepaid-related Q&As from the guidance:
Does the primary purpose exception apply to companies that distribute financial products (such as prepaid cards) that provide access to funds at one or more insured depository institutions?
Whether such companies qualify as deposit brokers depends upon the circumstances. As illustrated by the FAQs below, the primary purpose exception generally does not apply to such companies, and consequently, they are classified as deposit brokers, and the deposits would be brokered.
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.
What is an example of a company that distributes prepaid cards (providing access to funds at an insured depository institution) without being classified as a deposit broker?
An example is a corporation that distributes prepaid cards as part of a rebate program. In this scenario, the corporation places its own corporate funds (not the cardholders’ funds) into an account at an insured depository institution. The cardholders collect their rebates by using the cards. Thus, the distribution of prepaid cards in this case is no different than the distribution of checks (payable against the corporation’s checking account). The corporation is not a deposit broker. Of course, if a third party (not the corporation) is involved in the placement of the corporation’s funds into the account at the insured depository institution, the third party would be a deposit broker. As a result, the deposits would be brokered deposits.
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