Capital Briefs: Regulation of Stored-Value Cards Opposed

Bankers argued in comment letters that the Federal Deposit Insurance Corp. should not adopt rules defining which stored-value cards qualify for deposit insurance coverage.

"We believe that deposit insurance should merely be available as an option for stored-value cards regardless of denomination, not mandated by regulation," wrote John H. Huffstutler, senior vice president of Bank of America.

In a legal opinion issued in July, the FDIC said that most stored-valued cards are not covered by deposit insurance. But the agency said banks could devise cards that would qualify for FDIC coverage. These products would hold money in the consumer's account until a payment was made. The agency asked the public whether it should adopt a regulation to accompany the legal opinion.

Nineteen of the 20 comment letters filed last week were from banks, card companies, and industry trade groups, and all argued that regulating stored-value cards would stifle innovation. Most of these letters also noted that consumers do not consider stored-value cards to be deposits or bank accounts.

"Consumers are not expecting disposable, small dollar stored-value cards to be insured," wrote Kenneth W. McAllister, executive vice president and general counsel of Wachovia Corp. "Instead, consumers regard them as an alternative to cash."

Bankers generally agreed that they should voluntarily disclose to customers whether stored-value cards are federally insured.