FDIC Issues Revised Brokered Deposit FAQs Affecting Prepaid (Nov. 16, 2015)
The FDIC last week issued a revised financial institution letter soliciting public opinion on a proposed update to its series of FAQs related to identifying, accepting and reporting brokered deposits. The revised guidance, which has a 45-day comment period that ends Dec. 28, has far-reaching implications for the prepaid industry.
For one thing, it appears that GPR cards sold at retail and through program managers will not be able to claim the primary purpose exception, and government benefit cards may not fall under the primary purpose exception either. Historically, the prepaid industry has relied on the primary purpose exception, which says that “an agent or nominee whose primary purpose is not the placement of funds with depository institutions” is not considered a deposit broker. In its revised FAQs, the FDIC notes that the primary purpose exception applies only infrequently and typically requires a specific request for a determination by the FDIC.
“The selling or distributing of general purpose prepaid cards, accompanied by the placement of the cardholders’ funds into a deposit account, is not secondary or incidental to the accomplishment of some other objective on the part of the prepaid card company,” the FDIC writes. “The general purpose prepaid card and the deposit account are inseparable, in that the card is a device that provides access to the funds in the underlying deposit account. Because of this relationship, prepaid card companies are not covered by the primary purpose exception. Therefore, prepaid card companies or other third parties, in selling or distributing prepaid cards, would qualify as deposit brokers with the result that the deposits are classified as brokered deposits.”
The FDIC would apply the primary purpose exception to government benefit cards if:
- The federal or state agency is mandated by law to disburse the funds to the beneficiaries;
- The federal or state agency is the sole source of funding for the deposit accounts; and
- The deposits owned by the beneficiaries do not produce fees payable to the federal or state agency by the insured depository institution.
The FDIC acknowledges that if an institution was unaware of brokered deposit treatment until the FAQs were released, then the agency generally wouldn’t seek refiling of past Consolidated Reports of Condition and Income (Call Reports). However, an institution’s accounting and financial reporting personnel might make their own refiling recommendations. The agency also encourages financial institutions to contact the FDIC regional offices or subject matter experts listed in the financial institution letter if they have questions.
Comments, which will be posted on the FDIC’s Website, may be sent to BrokeredDepositFAQs@fdic.gov.
Click here for highlights of the FDIC’s changes.
Click here for the FDIC’s marked up changes.