Stored Value Cards

This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules

Federal Register

20558

Vol. 69, No. 74

Friday, April 16, 2004

1 This proposed rulemaking does not apply to

‘‘gift cards’’ offered by retailers in ‘‘closed systems.’’

Although such cards may be referred to as ‘‘stored

value cards,’’ a ‘‘gift card’’ offered by a retailer (in

a ‘‘closed system’’) is different than a ‘‘stored value

card’’ offered by a bank (in an ‘‘open system’’)

because the former card—unlike the latter card—

does not move through a ‘‘clearing’’ process. In

other words, the ‘‘value’’ on the card does not

depend on whether a bank holds sufficient funds

to back-up the card. Indeed, the retailer who

accepts the card does not expect to receive payment

through a bank. On the contrary, the retailer has

been prepaid through the retailer’s sale of the card.

Through such sale, the ownership of the

cardholder’s funds passes from the cardholder to

the retailer. Of course, the retailer might then place

the collected funds into a deposit account at an

FDIC-insured depository institution but any such

placement of funds would have no effect on the

‘‘value’’ of the card or the cardholder’s ability to use

the card to collect the promised goods or services

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 303

RIN 3064–AC80

Definition of ‘‘Deposit’’; Stored Value

Cards

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

SUMMARY: The FDIC is publishing for

notice and comment a proposed rule

that would clarify the meaning of

‘‘deposit’’ as that term relates to funds at

insured depository institutions

underlying stored value cards

RATION

12 CFR Part 303

RIN 3064–AC80

Definition of ‘‘Deposit’’; Stored Value

Cards

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

SUMMARY: The FDIC is publishing for

notice and comment a proposed rule

that would clarify the meaning of

‘‘deposit’’ as that term relates to funds at

insured depository institutions

underlying stored value cards. This

proposed rule would add a new section

to part 303 of title 12 of the Code of

Federal Regulations and would replace

General Counsel’s Opinion No. 8,

published by the FDIC in 1996. Since

the publication of General Counsel’s

Opinion No. 8, the banking industry has

developed new types of stored value

card systems. As a result, this new

section is necessary to provide guidance

to the industry and the public as to

when funds underlying stored value

cards will satisfy the definition of

‘‘deposit’’ at section 3(l) of the Federal

Deposit Insurance Act. This new section

would promote accuracy and

consistency by insured depository

institutions in reporting ‘‘deposits.’’

DATES: Written comments must be

received by the FDIC no later than July

15, 2004.

ADDRESSES: All comments should be

addressed to Robert E. Feldman,

Executive Secretary (Attention:

Comments/Legal ESS), Federal Deposit

Insurance Corporation, 550 17th Street,

NW., Washington, DC 20429. Comments

may be hand-delivered to the guard

station located at the rear of the 550

17th Street Building (located on F

Street) on business days between 7 a.m.

and 5 p.m. Also, comments may be sent

by e-mail to comments@fdic.gov.

Comments may be inspected and

photocopied in the FDIC Public

Information Center, Room 100, 801 17th

Street, NW., Washington, DC, on

business days between 9 a.m. and 4:30

p.m. The FDIC may post comments at its

Internet site at the following address:

http://www.fdic.gov/regulations/laws/

federal/propose.html.

FOR FURTHER INFORMATION CONTACT:

Christopher L

by e-mail to comments@fdic.gov.

Comments may be inspected and

photocopied in the FDIC Public

Information Center, Room 100, 801 17th

Street, NW., Washington, DC, on

business days between 9 a.m. and 4:30

p.m. The FDIC may post comments at its

Internet site at the following address:

http://www.fdic.gov/regulations/laws/

federal/propose.html.

FOR FURTHER INFORMATION CONTACT:

Christopher L. Hencke, Counsel, Legal

Division, (202) 898–8839, Federal

Deposit Insurance Corporation, 550 17th

Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Introduction

For purposes of the Federal Deposit

Insurance Act (‘‘FDI Act’’), the term

‘‘deposit’’ is defined at section 3(l) (12

U.S.C. 1813(l)). In 1996, the FDIC

interpreted this term as it relates to

funds at insured depository institutions

underlying ‘‘stored value cards.’’ The

FDIC’s interpretation is set forth in

General Counsel’s Opinion No. 8

(‘‘GC8’’) (discussed below in Section III).

See 61 FR 40490 (August 2, 1996).

GC8 did not address all types of

stored value card systems involving

insured depository institutions. These

systems were new in 1996 and many of

the systems currently offered by insured

depository institutions were developed

after the issuance of the FDIC’s opinion.

The development of new systems has

created a need for additional guidance

as to whether the underlying funds

qualify as ‘‘deposits.’’ Although the

proposed rule would provide such

additional guidance, it would retain the

basic principles set forth in GC8 and

extend these principles to new types of

stored value card systems.

An example of a system not addressed

in GC8 is where a company maintains

an account at an insured depository

institution for the purpose of making

payments on stored value cards issued

by that company (and not issued by the

insured depository institution)

guidance, it would retain the

basic principles set forth in GC8 and

extend these principles to new types of

stored value card systems.

An example of a system not addressed

in GC8 is where a company maintains

an account at an insured depository

institution for the purpose of making

payments on stored value cards issued

by that company (and not issued by the

insured depository institution). For

reasons explained below, the FDIC

believes that the funds in such accounts

are ‘‘deposits.’’

Another system not addressed in GC8

is one in which an insured depository

institution—in connection with stored

value cards issued by the insured

depository institution (and not issued

by another company)—maintains a

pooled self-described ‘‘reserve account’’

(representing the institution’s liabilities

to multiple cardholders) but also

maintains individual subaccounts (with

each subaccount representing the

institution’s liability to a particular

cardholder). For reasons discussed

below, the FDIC proposes to add a new

section to part 303 of title 12 of the Code

of Federal Regulations that would

classify the funds in such systems as

‘‘deposits.’’ The FDIC seeks comments

on the proposed rule.

GC8 also did not address the

insurability of the funds underlying

‘‘payroll cards.’’ As discussed below, the

FDIC does not propose to adopt any rule

dealing specifically with ‘‘payroll

cards.’’ Rather, the FDIC proposes to

apply the same rules governing the

insurability of the funds underlying

other types of stored value cards.

As a preliminary matter, the meaning

of certain terms must be clarified. In this

notice of proposed rulemaking,

companies that issue stored value

cards—other than insured depository

institutions—are referred to as

‘‘sponsoring companies.’’ This term is

used in the proposed rule

to

apply the same rules governing the

insurability of the funds underlying

other types of stored value cards.

As a preliminary matter, the meaning

of certain terms must be clarified. In this

notice of proposed rulemaking,

companies that issue stored value

cards—other than insured depository

institutions—are referred to as

‘‘sponsoring companies.’’ This term is

used in the proposed rule. In referring

to the ‘‘issuance’’ of stored value cards

by insured depository institutions or

sponsoring companies, the FDIC means

the distribution of cards to cardholders

(directly or through an agent) and the

making of a promise to the cardholder

that the card may be used to transfer the

underlying funds (i.e., the funds

received by the issuer in exchange for

the card’s issuance) to one or more

merchants at the merchants’ point of

sale terminals. Also, in using the term

‘‘stored value card,’’ the FDIC means a

device that enables the user to effect

such transfers of funds at merchants’

point of sale terminals. The definition of

‘‘stored value card’’ is discussed in

detail in Section VI.1

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from the retailer. To the extent that the retailer

places funds into an account at an FDIC-insured

depository institution, the funds would be insurable

to the retailer (not the cardholder) in accordance

with the ordinary deposit insurance rules at 12 CFR

part 330. See 12 CFR 330.11(a) (providing that the

deposit accounts of a corporation are added

together and insured up to $100,000).

2 The meaning of ‘‘deposit’’ is relevant under the

FDI Act for assessment and insurance purposes.

There are a number of other issues, not addressed

in this proposed rulemaking, which are of great

importance to the FDIC and which the FDIC will

continue to monitor as appropriate

FR 330.11(a) (providing that the

deposit accounts of a corporation are added

together and insured up to $100,000).

2 The meaning of ‘‘deposit’’ is relevant under the

FDI Act for assessment and insurance purposes.

There are a number of other issues, not addressed

in this proposed rulemaking, which are of great

importance to the FDIC and which the FDIC will

continue to monitor as appropriate. Such issues

include, but are not limited to, systemic risk,

security, electronic fund transfer matters, reserve

requirements, counterfeiting, monetary policy and

money laundering.

This proposed rulemaking may not

resolve all questions concerning the

definition of ‘‘deposit’’ as that term

relates to funds underlying stored value

cards and other stored value products.

Developments in the banking industry

may lead to new questions. The process

of defining ‘‘deposit’’—in response to

such developments—may be

evolutionary. In any event, this

rulemaking will resolve certain specific

questions that have arisen since the

publication of GC8. In the event that

questions arise that are not resolved by

this rulemaking, the FDIC may need to

resolve such questions on a case-by-case

basis.

Also, this rulemaking is not intended

to address any issue except the meaning

of ‘‘deposit’’ under the FDI Act but the

FDIC welcomes comments on any issues

that may be related to the meaning of

‘‘deposit’’ in the context of stored value

cards.2

The determination of whether certain

funds are ‘‘deposits’’ requires an

analysis of the statutory definition of

‘‘deposit’’ at section 3(l) of the FDI Act.

The relevant portions of the statutory

definition are quoted below. The

recitation below of the relevant statutory

language is followed by a detailed

summary of the FDIC’s interpretation of

this language in GC8. This summary is

followed by an analysis of the new types

of stored value card systems.

II. The Statutory Definition

The definition of ‘‘deposit’’ at section

3(l) of the FDI Act is a broad one

portions of the statutory

definition are quoted below. The

recitation below of the relevant statutory

language is followed by a detailed

summary of the FDIC’s interpretation of

this language in GC8. This summary is

followed by an analysis of the new types

of stored value card systems.

II. The Statutory Definition

The definition of ‘‘deposit’’ at section

3(l) of the FDI Act is a broad one. At

paragraph 3(l)(1), the term ‘‘deposit’’ is

defined in part as ‘‘the unpaid balance

of money or its equivalent received or

held by a bank or savings association in

the usual course of business and for

which it has given or is obligated to give

credit, either conditionally or

unconditionally, to a commercial,

checking, savings, time, or thrift

account, or which is evidenced by its

certificate of deposit, thrift certificate,

investment certificate, certificate of

indebtedness, or other similar name.

* * *’’ 12 U.S.C. 1813(l)(1).

At paragraph 3(l)(3), the term

‘‘deposit’’ is defined in part as ‘‘money

received or held by a bank or savings

association, or the credit given for

money or its equivalent received or held

by a bank or savings association, in the

usual course of business for a special or

specific purpose, regardless of the legal

relationship thereby established,

including without being limited to,

escrow funds, funds held as security for

an obligation due to the bank or savings

association or others (including funds

held as dealers reserves) or for securities

loaned by the bank or savings

association, funds deposited by a debtor

to meet maturing obligations, funds

deposited as advance payment on

subscriptions to United States

Government securities, funds held for

distribution or purchase of securities,

funds held to meet its acceptances or

letters of credit, and withheld taxes.

* * *’’ 12 U.S.C. 1813(l)(3).

In addition, paragraph 3(l)(5) provides

that the FDIC may in consultation with

other financial regulatory agencies

define ‘‘deposit’’ through regulation

as advance payment on

subscriptions to United States

Government securities, funds held for

distribution or purchase of securities,

funds held to meet its acceptances or

letters of credit, and withheld taxes.

* * *’’ 12 U.S.C. 1813(l)(3).

In addition, paragraph 3(l)(5) provides

that the FDIC may in consultation with

other financial regulatory agencies

define ‘‘deposit’’ through regulation.

Specifically, paragraph 3(l)(5) provides

that the term ‘‘deposit’’ includes ‘‘such

other obligations of a bank or savings

association as the Board of Directors [of

the FDIC], after consultation with the

Comptroller of the Currency, Director of

the Office of Thrift Supervision, and the

Board of Governors of the Federal

Reserve System, shall find and prescribe

by regulation to be deposit liabilities by

general usage. * * *’’ 12 U.S.C.

1813(l)(5). In accordance with paragraph

3(l)(5), the FDIC has invited comments

from the other federal banking agencies

in connection with this proposed

rulemaking.

In GC8, the FDIC relied in large part

upon paragraphs 3(l)(1) and 3(l)(3)

(quoted above) in determining whether

the funds underlying certain types of

stored value cards qualified as

‘‘deposits.’’ A summary of GC8 is set

forth below.

III. General Counsel’s Opinion No. 8

GC8 is an interpretation of the term

‘‘deposit’’ as that term relates to funds

underlying stored value cards. In GC8,

the FDIC identified several types of

stored value card systems involving

insured depository institutions. The

FDIC made no attempt, however, to

identify all types of systems. Moreover,

the FDIC made no attempt to analyze

systems offered by particular insured

depository institutions. Rather, the FDIC

described a mechanism or framework

for determining when the funds

underlying stored value cards may or

may not qualify as ‘‘deposits.’’ See 61 FR

40490. This framework was based upon

information available to the FDIC in

1996. Since that time, the banking

industry has developed new types of

stored value cards

systems offered by particular insured

depository institutions. Rather, the FDIC

described a mechanism or framework

for determining when the funds

underlying stored value cards may or

may not qualify as ‘‘deposits.’’ See 61 FR

40490. This framework was based upon

information available to the FDIC in

1996. Since that time, the banking

industry has developed new types of

stored value cards.

In GC8, the FDIC identified four types

of stored value card systems: (1) A

‘‘Bank Primary-Reserve System’’; (2) a

‘‘Bank Primary-Customer Account

System’’; (3) a ‘‘Bank Secondary-

Advance System’’; and (4) a ‘‘Bank

Secondary-Pre-Acquisition System.’’

Each of these systems is summarized

below.

In a ‘‘Bank Primary-Reserve System,’’

the insured depository institution issues

stored value cards in exchange for cash

from the cardholders. The depository

institution does not maintain an

individual account for each cardholder;

rather, the institution maintains a

pooled ‘‘reserve account’’ for all

cardholders. In making payments to

merchants or other payees (as the

cardholders use their cards to purchase

goods or services), the depository

institution disburses funds from this

‘‘reserve account.’’ In GC8, the FDIC

determined that such funds held by the

insured depository institution do not

satisfy the statutory definition of

‘‘deposit’’ at section 3(l) of the FDI Act.

In making this determination, the FDIC

specifically addressed the applicability

of paragraphs 3(l)(1) and 3(l)(3) (quoted

above). First, in finding that the funds

do not satisfy paragraph 3(l)(1), the

FDIC found that the stored value cards

are not structured so that the institution

credits a conventional commercial,

checking, savings, time or thrift account.

Rather, the institution credits the pooled

‘‘reserve account.’’ See 61 FR 40490

ly addressed the applicability

of paragraphs 3(l)(1) and 3(l)(3) (quoted

above). First, in finding that the funds

do not satisfy paragraph 3(l)(1), the

FDIC found that the stored value cards

are not structured so that the institution

credits a conventional commercial,

checking, savings, time or thrift account.

Rather, the institution credits the pooled

‘‘reserve account.’’ See 61 FR 40490. The

FDIC noted that ‘‘the sample agreements

which the FDIC staff has reviewed

clearly indicate that the parties to a

stored value card agreement * * * do

not intend that the funds be credited to

one of the five enumerated accounts.’’

Id. Second, in finding that the funds do

not satisfy paragraph 3(l)(3), the FDIC

determined that the purpose of the

funds is not sufficiently ‘‘special or

specific’’ because the funds might be

disbursed to any number of merchants

as the cardholders use their cards to

engage in miscellaneous and unrelated

transactions. See 61 FR 40490. The FDIC

noted that the holding of funds by a

depository institution to meet

obligations to numerous transferees

does not appear to be as specific a

purpose as the examples in the statute

and case law. See id. The FDIC

concluded that the funds in this type of

system are not ‘‘deposits.’’ See 61 FR

40490.

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A ‘‘Bank Primary-Customer Account

System’’ is similar to a ‘‘Bank Primary-

Reserve System’’ in that the insured

depository institution issues stored

value cards in exchange for cash from

the cardholders. The accounting

techniques in the two systems, however,

are different. In a ‘‘Bank Primary-

Customer Account System,’’ the

depository institution does not maintain

a pooled ‘‘reserve account’’ for all

cardholders. Rather, the institution

maintains an individual account for

each cardholder

insured

depository institution issues stored

value cards in exchange for cash from

the cardholders. The accounting

techniques in the two systems, however,

are different. In a ‘‘Bank Primary-

Customer Account System,’’ the

depository institution does not maintain

a pooled ‘‘reserve account’’ for all

cardholders. Rather, the institution

maintains an individual account for

each cardholder. Citing paragraph 3(l)(1)

of the statutory definition (quoted

above), the FDIC in GC8 determined that

the funds in these individual accounts

are ‘‘deposits.’’ See 61 FR 40490.

In a ‘‘Bank Secondary-Advance

System,’’ the insured depository

institution acts as an intermediary in

collecting funds from cardholders in

exchange for stored value cards issued

by a third party or sponsoring company.

The funds are held by the depository

institution for a short period of time,

then forwarded to the third party. See

61 FR 40490. Later, when the

cardholder uses the stored value card to

make a purchase from a merchant, the

third party (and not the depository

institution) sends the appropriate

amount of money to the merchant. In

GC8, the FDIC determined that the

funds collected by the depository

institution are ‘‘deposits’’ belonging to

the third party for the brief period

before the funds are forwarded to the

third party. The funds are not ‘‘deposits’’

belonging to the cardholders because

the institution’s liability for these funds

is owed to the third party for whom the

institution is temporarily holding the

funds. See 61 FR 40490.

Similarly, in a ‘‘Bank Secondary-Pre-

Acquisition System,’’ the insured

depository institution provides

cardholders with cards issued by a third

party or sponsoring company. Prior to

selling the cards to the cardholders,

however, the depository institution

purchases the cards from the third

party. See 61 FR 40490

or whom the

institution is temporarily holding the

funds. See 61 FR 40490.

Similarly, in a ‘‘Bank Secondary-Pre-

Acquisition System,’’ the insured

depository institution provides

cardholders with cards issued by a third

party or sponsoring company. Prior to

selling the cards to the cardholders,

however, the depository institution

purchases the cards from the third

party. See 61 FR 40490. In this respect,

the system is different than a ‘‘Bank

Secondary-Advance System.’’ When the

depository institution resells the cards

to the cardholders, no money is owed to

the third party. For this reason, the

depository institution is free to retain

the funds collected from the

cardholders. Later, when a cardholder

uses his/her stored value card to make

a purchase from a merchant, the third

party and not the depository institution

sends the appropriate amount of funds

to the merchant.

In GC8, the FDIC determined that the

funds collected by the depository

institution in a ‘‘Bank Secondary-Pre-

Acquisition System’’ are not ‘‘deposits.’’

See 61 FR 40490. This conclusion was

based upon the fact that the depository

institution, in collecting funds from

cardholders, does not assume a

responsibility to return or disburse the

funds to the cardholders or the third

party or any other party. Rather, the

depository institution merely sells the

right to collect funds from the third

party (i.e., the issuer of the cards). Thus,

the funds underlying the stored value

cards are held by the third party, not the

depository institution. Under these

circumstances, no ‘‘deposits’’ exist at the

depository institution. See 12 U.S.C.

1813(l)(1) (defining ‘‘deposit’’ as an

‘‘unpaid balance of money or its

equivalent’’); 12 U.S.C

ly sells the

right to collect funds from the third

party (i.e., the issuer of the cards). Thus,

the funds underlying the stored value

cards are held by the third party, not the

depository institution. Under these

circumstances, no ‘‘deposits’’ exist at the

depository institution. See 12 U.S.C.

1813(l)(1) (defining ‘‘deposit’’ as an

‘‘unpaid balance of money or its

equivalent’’); 12 U.S.C. 1813(l)(3)

(providing that the term ‘‘deposit’’ does

not include ‘‘funds which are received

by the bank or savings association for

immediate application to the reduction

of an indebtedness to the receiving bank

or savings association, or under

condition that the receipt thereof

immediately reduces or extinguishes

such an indebtedness’’).

IV. New Types of Stored Value Cards

As a result of developments in the

banking industry, the classification

scheme described in the previous

section is at a minimum incomplete,

and may be obsolete. That is, this

classification scheme does not include

all types of stored value card systems

involving insured depository

institutions. Examples of new types of

systems are described below:

Example A: A sponsoring company

issues cards to cardholders in exchange

for cash. The company then places the

cash into an account at an insured

depository institution. Through an

agreement between the company and

the depository institution, the account is

designated as a ‘‘reserve account.’’ The

company uses the funds in the self-

described ‘‘reserve account’’ to make

payments to merchants as the

cardholders use their cards. In this

manner, the company satisfies its

obligations as the issuer of the cards.

Example B: Through kiosks at retail

stores, an insured depository institution

issues cards to cardholders in exchange

for cash. In connection with the

issuance of these cards, the depository

institution maintains a self-described

‘‘reserve account.’’ At the same time, the

institution maintains an individual

account or subaccount for each

cardholder

obligations as the issuer of the cards.

Example B: Through kiosks at retail

stores, an insured depository institution

issues cards to cardholders in exchange

for cash. In connection with the

issuance of these cards, the depository

institution maintains a self-described

‘‘reserve account.’’ At the same time, the

institution maintains an individual

account or subaccount for each

cardholder. When a cardholder uses his/

her card to purchase goods or services

from a merchant, the ‘‘reserve account’’

is debited and the individual account or

subaccount also is debited. Account

statements are made available to the

cardholders so that they may check their

balances.

Example C: In paying wages to its

employees, a company distributes

‘‘payroll cards’’ in lieu of checks. Prior

to the distribution of the cards, the

company places funds at an insured

depository institution. Briefly, the funds

are held in a self-described ‘‘funding

account.’’ After the distribution of the

cards (on payday), however, the funds

are transferred to individual accounts

for the various employees. When an

employee uses his/her card to purchase

goods or services, funds are disbursed

from the employee’s individual account

to the merchant.

None of the cards or systems

described above was addressed in GC8.

In Example A, the system is similar to

a ‘‘Bank Primary-Reserve System’’ in

that the insured depository institution

maintains a ‘‘reserve account.’’ The

system is different, however, in that the

issuer of the cards is a sponsoring

company and not the insured depository

institution.

In Example B, the system is similar to

a ‘‘Bank Primary-Reserve System’’ in

that the insured depository institution

maintains a ‘‘reserve account.’’ The

system is different, however, in that the

depository institution also maintains an

account or subaccount for each

cardholder

t, however, in that the

issuer of the cards is a sponsoring

company and not the insured depository

institution.

In Example B, the system is similar to

a ‘‘Bank Primary-Reserve System’’ in

that the insured depository institution

maintains a ‘‘reserve account.’’ The

system is different, however, in that the

depository institution also maintains an

account or subaccount for each

cardholder. In this respect, the system is

similar to a ‘‘Bank Primary-Customer

Account System.’’

Finally, in Example C, the system is

different than the systems described in

GC8 because none of the systems in GC8

involved the payment of wages by an

employer. The involvement of the

employer raises questions as to (1)

whether the issuer of the cards is the

employer as opposed to the depository

institution; and (2) whether the owner

of the funds placed at the depository

institution is the employer as opposed

to the employees.

The examples above may or may not

be typical. Possibly, the stored value

card systems offered by some banks

differ from the systems above in a

variety of ways. For instance, a ‘‘payroll

card’’ system might exist in which the

funds are not transferred to individual

accounts. Rather, the system might be

designed so that the funds are held in

a pooled ‘‘reserve account.’’ This pooled

account might or might not include

individual subaccounts. The

cardholders might or might not receive

periodic statements. The cardholders

might or might not possess the ability to

reload their cards. The possibilities are

numerous.

In any event, GC8 did not address all

types of stored value card systems

involving insured depository

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The

cardholders might or might not receive

periodic statements. The cardholders

might or might not possess the ability to

reload their cards. The possibilities are

numerous.

In any event, GC8 did not address all

types of stored value card systems

involving insured depository

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institutions. Additional guidance is

needed as to whether the underlying

funds held by depository institutions

qualify as ‘‘deposits.’’ Below, this issue

is discussed in connection with the

three types of systems described in the

examples above.

A. Accounts Funded by Sponsoring

Companies

A type of system not addressed in

GC8 is a system in which (1) Consumers

place funds with a sponsoring company

in exchange for stored value cards; and

(2) in order to make payments on the

stored value cards, the sponsoring

company maintains an account at an

insured depository institution. In this

system, the issuer of the cards is the

sponsoring company (as in the ‘‘Bank

Secondary-Advance System’’ and the

‘‘Bank Secondary-Pre-Acquisition

System’’) and not the depository

institution.

The question is whether the funds

placed at the insured depository

institution, in this type of system, are

‘‘deposits’’ as defined at section 3(1) of

the FDI Act. For the reasons explained

below, the FDIC believes that the funds

are ‘‘deposits’’ under paragraph 3(1)(1)

and paragraph 3(1)(3).

Paragraph 3(1)(1). As previously

quoted, paragraph 3(1)(1) defines

‘‘deposit’’ as ‘‘[t]he unpaid balance of

money or its equivalent received or held

by a bank or savings association in the

usual course of business and for which

it has given or is obligated to give credit,

either conditionally or unconditionally,

to a commercial, checking, savings,

time, or thrift account. * * *’’ 12 U.S.C.

1813(1)(1)

)(1). As previously

quoted, paragraph 3(1)(1) defines

‘‘deposit’’ as ‘‘[t]he unpaid balance of

money or its equivalent received or held

by a bank or savings association in the

usual course of business and for which

it has given or is obligated to give credit,

either conditionally or unconditionally,

to a commercial, checking, savings,

time, or thrift account. * * *’’ 12 U.S.C.

1813(1)(1). In the case of an account

funded by a sponsoring company for the

purpose of making payments on stored

value cards, the account is a

‘‘commercial account’’ under this

paragraph because the account is owned

for a commercial purpose by a

commercial enterprise (i.e., the

sponsoring company). The account is

not a non-deposit ‘‘general liability

account’’ maintained by the depository

institution. See 61 FR 40490

(recognizing a distinction between a

‘‘commercial, checking, savings, time, or

thrift account’’ under paragraph 3(1)(1)

and a ‘‘general liability account’’).

Paragraph 3(1)(3). As previously

quoted, paragraph 3(1)(3) provides that

the term ‘‘deposit’’ includes ‘‘money

received or held by a bank or savings

association, or the credit given for

money or its equivalent received or held

by a bank or savings association, in the

usual course of business for a special or

specific purpose, regardless of the legal

relationship thereby established,

including without being limited to

* * * funds deposited by a debtor to

meet maturing obligations. * * * ’’ 12

U.S.C. 1813(1)(3). In GC8, the FDIC

found that this paragraph is not satisfied

by a pooled ‘‘reserve account’’ funded by

multiple cardholders for the purpose of

engaging in miscellaneous unrelated

transactions. See 61 FR 40490. In the

case of an account funded by a

sponsoring company, however,

paragraph 3(1)(3) is satisfied because the

single intended purpose is to hold the

funds for the sponsoring company

In GC8, the FDIC

found that this paragraph is not satisfied

by a pooled ‘‘reserve account’’ funded by

multiple cardholders for the purpose of

engaging in miscellaneous unrelated

transactions. See 61 FR 40490. In the

case of an account funded by a

sponsoring company, however,

paragraph 3(1)(3) is satisfied because the

single intended purpose is to hold the

funds for the sponsoring company.

Under paragraph 3(1)(3), this ‘‘special or

specific purpose’’ means that the

liabilities represented by the account at

the insured depository institution

(whether or not the account is described

as a ‘‘reserve account’’) are ‘‘deposits.’’

The conclusion above is supported by

the case law. The purpose of funding

stored value cards is no less ‘‘special or

specific’’ than the purposes recognized

by the courts as ‘‘special or specific.’’

See Seattle-First National Bank v. FDIC,

619 F. Supp. 1351 (W.D. Okla. 1985)

(funding a participated loan is a ‘‘special

or specific purpose’’); FDIC v. European

American Bank & Trust Co., 576 F.

Supp. 950 (S.D.N.Y. 1983) (funding an

interbank clearinghouse payment is a

‘‘special or specific purpose’’). The

conclusion above is supported by GC8

as well. See 61 FR 40490 (even in the

case of a ‘‘reserve account’’ funded by

cardholders, the funds are ‘‘deposits’’ if

each cardholder’s ‘‘ultimate payee can

only be one predetermined party’’).

Finally, the conclusion above is

supported by one of the examples of a

‘‘deposit’’ specifically mentioned in

paragraph 3(l)(3): ‘‘funds deposited by a

debtor to meet maturing obligations.’’ In

the case of an account funded by a

sponsoring company, the funds are

equivalent to ‘‘funds deposited by a

debtor to meet maturing obligations’’

because the funds are deposited by the

sponsoring company to meet that

company’s obligations to the

cardholders as the cardholders use their

cards

y mentioned in

paragraph 3(l)(3): ‘‘funds deposited by a

debtor to meet maturing obligations.’’ In

the case of an account funded by a

sponsoring company, the funds are

equivalent to ‘‘funds deposited by a

debtor to meet maturing obligations’’

because the funds are deposited by the

sponsoring company to meet that

company’s obligations to the

cardholders as the cardholders use their

cards.

In conclusion, the FDIC believes that

funds placed at an insured depository

institution by a sponsoring company for

the purpose of making payments on

stored value cards are ‘‘deposits.’’ This

conclusion is incorporated in the

proposed rule.

A separate question is whether the

‘‘deposits’’ in such a system can be

insured on a ‘‘pass-through’’ basis to the

cardholders (as opposed to being

insured to the sponsoring company).

Under the FDIC’s insurance regulations,

funds deposited by an agent or

custodian on behalf of a principal or

principals are insured not to the agent

but to the principal(s) (in aggregation

with any other deposits owned by the

principal(s) at the same insured

depository institution). See 12 CFR

330.7(a). In other words, the insurance

coverage ‘‘passes through’’ the agent to

the principal(s). Such ‘‘pass-through’’

coverage is not available, however,

unless certain requirements are

satisfied. First, the fiduciary status of

the nominal accountholder must be

disclosed in the deposit account records

of the insured depository institution.

See 12 CFR 330.5(b)(1). Second, the

interests of the principals or actual

owners must be ascertainable either

from the account records of the insured

depository institution or records

maintained in good faith by the agent or

other party. See 12 CFR 330.5(b)(2).

Third, the agency or custodial

relationship must be genuine. Through

this relationship, the deposit actually

must belong not to the nominal agent

but to the alleged owners. See 12 CFR

330.3(h); 12 CFR 330.5(a)(1)

t be ascertainable either

from the account records of the insured

depository institution or records

maintained in good faith by the agent or

other party. See 12 CFR 330.5(b)(2).

Third, the agency or custodial

relationship must be genuine. Through

this relationship, the deposit actually

must belong not to the nominal agent

but to the alleged owners. See 12 CFR

330.3(h); 12 CFR 330.5(a)(1).

Under the rules summarized above,

an account funded by a sponsoring

company for the purpose of making

payments to cardholders cannot be

insured on a ‘‘pass-through’’ basis to the

cardholders unless (1) the account

records reflect a custodial relationship

between the sponsoring company and

the cardholders (e.g., ‘‘Sponsoring

Company as Custodian for

Cardholders’’); (2) the depository

institution or the sponsoring company

or some other party maintains records

reflecting the interest of each

cardholder; and (3) the deposit is owned

in fact by the cardholders.

Satisfaction of the third requirement

will depend upon the agreements

between the sponsoring company and

the cardholders. One factor would be

whether the sponsoring company

retains the right to recover the funds

under certain circumstances (e.g., upon

the expiration of a card). Such a right

would indicate that the funds in the

account actually belong to the

sponsoring company, not the

cardholders. If the funds belong to the

sponsoring company, ‘‘pass-through’’

coverage will be unavailable.

B. Pooled ‘‘Reserve Accounts’’ With

Individual Subaccounts

As previously discussed, the FDIC in

GC8 identified two types of systems in

which the stored value cards are issued

by an insured depository institution.

These systems are the ‘‘Bank Primary-

Reserve System’’ and the ‘‘Bank

Primary-Customer Account System.’’ In

the former system, the insured

depository institution maintains a

pooled ‘‘reserve account’’ for all

cardholders

al Subaccounts

As previously discussed, the FDIC in

GC8 identified two types of systems in

which the stored value cards are issued

by an insured depository institution.

These systems are the ‘‘Bank Primary-

Reserve System’’ and the ‘‘Bank

Primary-Customer Account System.’’ In

the former system, the insured

depository institution maintains a

pooled ‘‘reserve account’’ for all

cardholders. In the latter system, the

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insured depository institution maintains

an individual account for each

cardholder. Under GC8, only the funds

in the latter system are ‘‘deposits.’’

The FDIC has learned that some

insured depository institutions have

combined the two systems in issuing

stored value cards. The hybrid system

used by these depository institutions is

similar to a ‘‘Bank Primary-Reserve

System’’ in that the institution

maintains a pooled self-described

‘‘reserve account’’ for all cardholders.

On the other hand, the system also is

similar to a ‘‘Bank Primary-Customer

Account System’’ in that the institution

maintains a subaccount for each

cardholder. In some cases, the

depository institution maintains the

subaccounts through a processing agent.

In this notice of proposed rulemaking,

the term ‘‘subaccount’’ is used to mean

any supplemental records maintained

by the insured depository institution

(directly or through an agent) that

enable the institution to determine the

amounts of money owed to particular

persons (i.e., that enable the institution

to calculate a balance for each of the

persons who holds a card)

processing agent.

In this notice of proposed rulemaking,

the term ‘‘subaccount’’ is used to mean

any supplemental records maintained

by the insured depository institution

(directly or through an agent) that

enable the institution to determine the

amounts of money owed to particular

persons (i.e., that enable the institution

to calculate a balance for each of the

persons who holds a card).

Through this notice of proposed

rulemaking, the FDIC is proposing to

treat the funds in a hybrid system (i.e.,

a system in which a ‘‘reserve account’’

is supplemented by subaccounts) as

‘‘deposits.’’

An argument could be made that the

funds in a hybrid system should not be

treated as ‘‘deposits’’ because neither the

pooled ‘‘reserve account’’ nor any of the

individual subaccounts in a hybrid

system is a conventional ‘‘commercial,

checking, savings, time, or thrift

account’’ as those terms are interpreted

in GC8. Therefore, under the reasoning

in GC8, it could be argued that the funds

are not ‘‘deposits’’ under paragraph

3(l)(1) of the statutory definition. See 61

FR 40490. Moreover, the funds are used

by the bank customers to engage in

miscellaneous and unrelated

transactions. Under the logic set forth in

GC8, it could be argued that the funds

are not ‘‘deposits’’ under paragraph

3(l)(3). See 61 FR 40490.

On the other hand, the FDIC in GC8

applied paragraph 3(l)(3) to pooled

‘‘reserve accounts’’ but never applied

paragraph 3(l)(3) to individual accounts

or subaccounts. In the case of a ‘‘Bank

Primary-Customer Account System,’’

the FDIC did not apply paragraph 3(l)(3)

to the individual accounts because the

FDIC assumed that the individual

accounts would be conventional

‘‘commercial, checking, savings, time, or

thrift accounts’’ and therefore ‘‘deposits’’

under paragraph 3(l)(1). See 61 FR

40490

d

paragraph 3(l)(3) to individual accounts

or subaccounts. In the case of a ‘‘Bank

Primary-Customer Account System,’’

the FDIC did not apply paragraph 3(l)(3)

to the individual accounts because the

FDIC assumed that the individual

accounts would be conventional

‘‘commercial, checking, savings, time, or

thrift accounts’’ and therefore ‘‘deposits’’

under paragraph 3(l)(1). See 61 FR

40490. Even if the individual accounts

in a ‘‘Bank Primary-Customer Account

System’’ or hybrid system are not

conventional ‘‘commercial, checking,

savings, time, or thrift accounts’’ as

those terms are interpreted in GC8, an

argument can be made that the funds in

each of these accounts or subaccounts

are ‘‘deposits’’ under paragraph 3(l)(3)

because they are held by the insured

depository institution for the ‘‘special or

specific purpose’’ of satisfying the

institution’s obligations to a specific

customer, i.e., the cardholder. In fact,

the FDIC staff has endorsed this legal

analysis in a published advisory

opinion involving a stored value

product. See FDIC Advisory Opinion

No. 97–4 (May 12, 1997).

Moreover, in a hybrid system, the fact

that the pooled self-described ‘‘reserve

account’’ may not qualify as a

‘‘commercial, checking, savings, time, or

thrift account’’ under paragraph 3(l)(1)

does not mean that the individual

subaccounts do not qualify as

‘‘commercial, checking, savings, time, or

thrift accounts’’ under paragraph 3(l)(1).

In summary, the funds in a hybrid

system qualify as ‘‘deposits’’ under

paragraph 3(l)(3) and paragraph 3(l)(1).

Accordingly, the FDIC is proposing to

treat the funds in a hybrid system as

‘‘deposits.’’ Comments are requested.

C. ‘‘Payroll Cards’’

Another new type of stored value card

is the ‘‘payroll card.’’ In paying wages,

some employers are distributing

‘‘payroll cards’’ to their employees in

lieu of checks.

Prior to the distribution of the cards,

the employer places funds at an insured

depository institution

FDIC is proposing to

treat the funds in a hybrid system as

‘‘deposits.’’ Comments are requested.

C. ‘‘Payroll Cards’’

Another new type of stored value card

is the ‘‘payroll card.’’ In paying wages,

some employers are distributing

‘‘payroll cards’’ to their employees in

lieu of checks.

Prior to the distribution of the cards,

the employer places funds at an insured

depository institution. After the

distribution of the cards, the employees

may withdraw the funds by using their

cards. Specifically, the employees may

withdraw the funds at automated teller

machines or transfer the funds to

merchants through the merchants’ point

of sale terminals.

The FDIC’s staff position with respect

to ‘‘payroll cards’’ is set forth in FDIC

Advisory Opinion No. 02–03 (August

16, 2002). In that opinion, the staff

addressed the question of whether the

funds placed at the insured depository

institution by the employer are

insurable on a ‘‘pass-through’’ to the

employees. As explained in that

opinion, the issue depends upon the

actual ownership of the funds. If the

funds belong to the employer (as in the

case of a traditional corporate payroll

account), the funds are insurable to the

employer. In other words, in the event

of the failure of the insured depository

institution, the funds would be

aggregated with the employer’s other

funds (if any) at the same insured

depository institution and insured up to

$100,000. See 12 CFR 330.11(a)

(providing that the deposit accounts of

a corporation are added together and

insured up to $100,000). On the other

hand, the funds would be insurable on

a ‘‘pass-through’’ basis to the employees

(assuming the satisfaction of the FDIC’s

requirements for ‘‘pass-through’’

insurance coverage as previously

explained) if ownership of the funds has

passed to the employees (as in the case

of direct deposits made by an employer

on behalf of employees) prior to the

failure of the insured depository

institution

hand, the funds would be insurable on

a ‘‘pass-through’’ basis to the employees

(assuming the satisfaction of the FDIC’s

requirements for ‘‘pass-through’’

insurance coverage as previously

explained) if ownership of the funds has

passed to the employees (as in the case

of direct deposits made by an employer

on behalf of employees) prior to the

failure of the insured depository

institution.

The actual ownership of the funds

would depend upon the agreement

between the parties. One factor would

be whether the employer retains a

reversionary interest in the funds (e.g.,

in the event of the expiration of a card).

The retention of a reversionary interest

would indicate that the funds actually

belong to the employer and not the

employees.

As explained above, the issue

addressed in FDIC Advisory Opinion

No. 02–03 was whether deposits

underlying certain ‘‘payroll cards’’ were

eligible for ‘‘pass-through’’ insurance

coverage to the employees. In contrast,

the issue addressed by this proposed

rulemaking is whether certain funds

qualify as ‘‘deposits.’’ The two issues are

distinct. The former issue (whether

coverage is limited to $100,000 in

aggregation with the employer’s other

deposits) may be moot depending upon

the resolution of the latter issue

(whether the funds qualify as

‘‘deposits’’).

In regard to the former issue as to the

insurance coverage of deposits

underlying ‘‘payroll cards,’’ this

proposed rulemaking does not conflict

with FDIC Advisory Opinion No. 02–03.

In fact, the proposed rule includes no

special provisions dealing with ‘‘payroll

cards.’’ Likewise, the proposed rule

includes no special provisions dealing

with ‘‘prepaid cards’’ or ‘‘debit cards’’ or

‘‘check cards.’’ Rather, the proposed rule

would apply equally to all types of

stored value bank cards

s,’’ this

proposed rulemaking does not conflict

with FDIC Advisory Opinion No. 02–03.

In fact, the proposed rule includes no

special provisions dealing with ‘‘payroll

cards.’’ Likewise, the proposed rule

includes no special provisions dealing

with ‘‘prepaid cards’’ or ‘‘debit cards’’ or

‘‘check cards.’’ Rather, the proposed rule

would apply equally to all types of

stored value bank cards. Under the

proposed rule, the funds underlying all

such types of cards—including ‘‘payroll

cards’’—would be ‘‘deposits’’ except

under the following circumstances: (1)

The issuer of the cards (i.e., the party

that promises to make payments on the

cards) is the insured depository

institution (and not the employer or

other sponsoring company); and (2) the

depository institution maintains a

pooled ‘‘reserve account’’ but maintains

no subaccounts or other supplemental

records reflecting the amount of money

owed to particular cardholders.

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3 In a ‘‘closed’’ system sponsored by a retailer, the

possibility may exist that data-processing is

provided by an insured depository institution. This

circumstances would not affect the conclusion

above that the funds are not ‘‘deposits’’ provided

that the funds are not received or held by the

insured depository institution.

In a case involving ‘‘payroll cards,’’

the FDIC would apply the proposed rule

in determining whether the underlying

funds qualify as ‘‘deposits.’’ If a

determination is made that the funds are

‘‘deposits,’’ the FDIC then would apply

the principles set forth in FDIC

Advisory Opinion No. 02–03 in

determining whether the deposits are

entitled to ‘‘pass-through’’ insurance

coverage

itution.

In a case involving ‘‘payroll cards,’’

the FDIC would apply the proposed rule

in determining whether the underlying

funds qualify as ‘‘deposits.’’ If a

determination is made that the funds are

‘‘deposits,’’ the FDIC then would apply

the principles set forth in FDIC

Advisory Opinion No. 02–03 in

determining whether the deposits are

entitled to ‘‘pass-through’’ insurance

coverage.

Comments are requested as to

whether the treatment outlined above is

the appropriate treatment of funds

underlying ‘‘payroll cards’’ and other

types of stored value bank cards.

Whether funds underlying stored

value bank cards are ‘‘deposits’’ has

implications in a number of areas,

including but not limited to those

discussed below.

V. Acquisitions and Mergers

Section 3(d) of the Bank Holding

Company Act (‘‘BHC Act’’) and section

44(b) of the FDI Act allow the

appropriate federal banking agency to

approve an interstate bank acquisition

or merger only if, among other things,

the resulting organization and its

affiliates, upon consummation, would

not control more than 10 percent of the

total amount of ‘‘deposits’’ of insured

depository institutions in the United

States. See 12 U.S.C. 1831u(b); 12 U.S.C.

1842(d). For purposes of this restriction,

the term ‘‘deposit’’ is defined by

reference to section 3(l) of the FDI Act.

See 12 U.S.C. 1842(d)(2)(E). Comments

are requested on whether this

rulemaking could materially affect the

operation of the deposit limit on

interstate acquisitions or mergers under

section 3(d) of the BHC Act or section

44(b) of the FDI Act.

VI. The Definition of ‘‘Stored Value

Card’’

In GC8, the FDIC described a ‘‘stored

value card’’ as follows: ‘‘A stored value

card stores information electronically on

a magnetic stripe or computer chip and

can be used to purchase goods or

services. The balance recorded on the

card is debited at a merchant’s point of

sale terminal when the consumer makes

a purchase.’’ 61 FR 40490

FDI Act.

VI. The Definition of ‘‘Stored Value

Card’’

In GC8, the FDIC described a ‘‘stored

value card’’ as follows: ‘‘A stored value

card stores information electronically on

a magnetic stripe or computer chip and

can be used to purchase goods or

services. The balance recorded on the

card is debited at a merchant’s point of

sale terminal when the consumer makes

a purchase.’’ 61 FR 40490.

Some stored value card systems may

be designed in such a manner that a

balance is not recorded on the card itself

through a magnetic stripe or computer

chip. Rather, the system might be

designed so that the cardholder or

merchant must contact the bank to

determine the cardholder’s balance. In

any event, a stored value card is a

device that enables the cardholder to

transfer the underlying funds (i.e., the

funds received by the issuer of the card

in exchange for the issuance of the card)

to a merchant at the merchant’s point of

sale terminal.

As explained in GC8, stored value

cards may be ‘‘loaded’’ in a variety of

ways. If the cards are issued by a

sponsoring company, a card will be

‘‘loaded’’ when the cardholder gives

cash to the sponsoring company

(directly or through the sponsoring

company’s receiving agent) in exchange

for the card. If the cards are issued by

an insured depository institution, a card

will be ‘‘loaded’’ when (1) The

cardholder gives cash to the depository

institution in exchange for the card; or

are issued by a

sponsoring company, a card will be

‘‘loaded’’ when the cardholder gives

cash to the sponsoring company

(directly or through the sponsoring

company’s receiving agent) in exchange

for the card. If the cards are issued by

an insured depository institution, a card

will be ‘‘loaded’’ when (1) The

cardholder gives cash to the depository

institution in exchange for the card; or

(2) the cardholder directs the depository

institution to draw funds from a pre-

existing account in exchange for the

card. Some cards are ‘‘reloadable’’;

others are not. See id.

A stored value card is not cash.

Rather, a stored value card is a device

that stores information electronically

(e.g., on a magnetic stripe or computer

chip). A stored value card enables a

consumer to transfer the underlying

funds (i.e., the funds received by the

issuer of the card in exchange for the

issuance of the card) to a merchant at

the merchant’s point of sale terminal.

When used by a consumer, a stored

value card (or the information on the

card) moves through a ‘‘clearing’’

process. In GC8, the FDIC explained this

point as follows: ‘‘Although it may not

be apparent to the consumer, a stored

value card transaction must typically

move through a complex payment

system before a payment is completed.

Moreover, what is actually stored on

stored value cards is information that,

through the use of programmed

terminals, advises a prospective payee

that rights to a sum of money can be

transferred to the payee, who in turn

can exercise such right and be paid.’’ 61

FR 40490.

Different types of stored value cards

function in different ways. For example,

a stored value card transaction may be

‘‘on-line’’ in that the card may provide

direct access to a database for the

purpose of obtaining payment

authorization. On the other hand, the

transaction may be ‘‘off-line’’ in that the

card may not provide direct access to a

database

right and be paid.’’ 61

FR 40490.

Different types of stored value cards

function in different ways. For example,

a stored value card transaction may be

‘‘on-line’’ in that the card may provide

direct access to a database for the

purpose of obtaining payment

authorization. On the other hand, the

transaction may be ‘‘off-line’’ in that the

card may not provide direct access to a

database. Rather, information

concerning the transaction may be

captured at the merchant’s point of sale

terminal and then transmitted—after

some delay—to a data facility. See 61 FR

19696 (May 2, 1996). In either case,

‘‘clearing’’ will occur when payment is

made to the merchant by the insured

depository institution.

For purposes of this proposed

rulemaking, the distinction between

‘‘on-line’’ transactions and ‘‘off-line’’

transactions is unimportant. The

distinction that matters to the FDIC is

whether the stored value card provides

access (directly or indirectly) to money

received and held by an insured

depository institution. Assuming that

money is held by an insured bank, the

proposed rule would govern the

question of whether the money qualifies

as ‘‘deposits.’’ In the absence of any such

money, however, the existence of

‘‘deposits’’ is impossible. See FDIC v.

Philadelphia Gear Corporation, 106 S.

Ct. 1931 (1986). Thus, the proposed rule

would not apply to a ‘‘closed’’ stored

value card system (such as a ‘‘gift card’’

system sponsored by a retailer) in which

the merchant receives prepayment from

the cardholder and does not receive

payment through a bank. See footnote 1,

supra.3

The description of a ‘‘stored value

card’’ in GC8 has been used in defining

‘‘stored value card’’ in the proposed

rule. Comments are requested on the

proposed definition.

VII. Insurance Coverage

The proposed regulation does not set

forth any special rules regarding the

insurance coverage of any ‘‘deposits’’

underlying stored value cards

e

payment through a bank. See footnote 1,

supra.3

The description of a ‘‘stored value

card’’ in GC8 has been used in defining

‘‘stored value card’’ in the proposed

rule. Comments are requested on the

proposed definition.

VII. Insurance Coverage

The proposed regulation does not set

forth any special rules regarding the

insurance coverage of any ‘‘deposits’’

underlying stored value cards. Rather,

the proposed regulation merely states

that the insurance coverage of any such

‘‘deposits’’ shall be governed by the

FDIC’s insurance regulations at 12 CFR

part 330.

Under the FDI Act and the insurance

regulations, the FDIC must aggregate all

‘‘deposits’’ owned by a particular

depositor in a particular ownership

capacity in applying the $100,000

insurance limit. See 12 U.S.C.

1821(a)(1)(C); 12 CFR 330.3(a). In

identifying the owners of ‘‘deposits’’ for

insurance purposes, the FDIC is entitled

to rely upon the account records of the

failed insured depository institution.

See 12 U.S.C. 1822(c); 12 CFR 330.5.

The application of these basic principles

may be difficult in the case of ‘‘deposits’’

underlying certain stored value cards.

For example, an insured depository

institution might offer a type of stored

value card that can be transferred from

the original purchaser to some other

person. Assuming the existence of such

transferable cards, the depository

institution might keep records as to the

identities of the original purchasers but

no records as to the ultimate

cardholders. In the absence of such

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transferred from

the original purchaser to some other

person. Assuming the existence of such

transferable cards, the depository

institution might keep records as to the

identities of the original purchasers but

no records as to the ultimate

cardholders. In the absence of such

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Federal Register / Vol. 69, No. 74 / Friday, April 16, 2004 / Proposed Rules

records, the FDIC may be unable to

identify the ultimate cardholder in the

event of the failure of the institution. In

light of such possibilities, comments are

requested as to whether the FDIC should

adopt any special rules governing the

insurance coverage of any ‘‘deposits’’

underlying stored value cards or other

stored value products.

Of course, insurance coverage will not

be an issue if the funds do not qualify

as ‘‘deposits’’ under the proposed rule.

As previously explained, the funds will

not be ‘‘deposits’’ if (1) the issuer of the

cards is the insured depository

institution (and not a sponsoring

company); and (2) the depository

institution maintains a pooled ‘‘reserve

account’’ but maintains no subaccounts

or supplemental records reflecting the

amount of money owed to particular

cardholders (i.e., the institution

maintains no supplemental records

reflecting the amount of money owed to

the original cardholder or any

subsequent cardholder in the case of a

transferable card).

VIII

company); and (2) the depository

institution maintains a pooled ‘‘reserve

account’’ but maintains no subaccounts

or supplemental records reflecting the

amount of money owed to particular

cardholders (i.e., the institution

maintains no supplemental records

reflecting the amount of money owed to

the original cardholder or any

subsequent cardholder in the case of a

transferable card).

VIII. Required Disclosures

In a press release dated June 24, 1997

(PR–44–97), subsequent to the issuance

of GC8, the FDIC stated that it ‘‘expects

insured depository institutions to

clearly and conspicuously disclose to

customers the insured or non-insured

status of the stored-value cards they

offer to the public.’’

The FDIC continues to be concerned

that some purchasers of stored value

cards may not understand whether the

funds given to an insured depository

institution in exchange for such cards

are covered by federal deposit

insurance. In order to avoid confusion

on the part of customers, depository

institutions must accurately disclose the

insurability of the funds underlying any

stored value product in a manner that is

clear and conspicuous. For example, in

cases in which the funds qualify as

‘‘deposits,’’ the cards might include the

following statement: ‘‘Member FDIC—

Funds accessible by this card are

insured by the Federal Deposit

Insurance Corporation.’’ On the other

hand, in cases in which the funds do

not qualify as ‘‘deposits,’’ the cards

might include this statement: ‘‘NOT

FDIC INSURED—Funds accessible by

this card are NOT insured by the

Federal Deposit Insurance Corporation.’’

In addition, any advertisements for the

stored value product (including written

materials provided by the depository

institution when a card is delivered to

a consumer) must state whether the

underlying funds are insured by the

FDIC. Also, any advertisements for

insured ‘‘deposit’’ products must

comply with the membership

advertisement requirements of 12 CFR

328.3

surance Corporation.’’

In addition, any advertisements for the

stored value product (including written

materials provided by the depository

institution when a card is delivered to

a consumer) must state whether the

underlying funds are insured by the

FDIC. Also, any advertisements for

insured ‘‘deposit’’ products must

comply with the membership

advertisement requirements of 12 CFR

328.3.

In the case of cards issued by

sponsoring companies (and not issued

by an insured depository institution),

the company should not suggest that the

customer will be protected by the FDIC.

Even if the sponsoring company

maintains an account at an FDIC-

insured depository institution for the

purpose of making payments on its

cards, the company should make no

representations about FDIC insurance to

the customer because the insured

depositor will be the company and not

the customer (unless the FDIC’s

requirements for ‘‘pass-through’’

insurance coverage have been satisfied

as previously explained). False

representations about FDIC insurance

could be subject to criminal penalties.

See 18 U.S.C. 709.

Although the proposed regulation

does not set forth any new specific

disclosure requirements, the FDIC seeks

comments on this subject. Specifically,

the FDIC requests comments as to

whether the proposed rule ought to

mandate the disclosures detailed above

(or similar disclosures).

Request for Comments

The FDIC is seeking comments on

whether the agency should adopt a

regulation to clarify the meaning of the

term ‘‘deposit’’ as that term relates to

funds at insured depository institutions

underlying stored value cards. Under

the proposed regulation, the funds

would be ‘‘deposits’’ unless (1) the

institution itself has issued the cards

against a pooled ‘‘reserve account’’

representing multiple cardholders; and

ents on

whether the agency should adopt a

regulation to clarify the meaning of the

term ‘‘deposit’’ as that term relates to

funds at insured depository institutions

underlying stored value cards. Under

the proposed regulation, the funds

would be ‘‘deposits’’ unless (1) the

institution itself has issued the cards

against a pooled ‘‘reserve account’’

representing multiple cardholders; and

(2) the institution maintains no

supplemental records or subaccounts

reflecting the amount owed to each

cardholder.

Comments are requested on the

proposed rule. Commenters may wish to

address each of the following specific

questions:

1. Should the FDIC promulgate a new

section to part 303 to clarify the

meaning of ‘‘deposit’’ as that term relates

to funds at insured depository

institutions underlying stored value

cards?

2. If so, should the FDIC adopt the

proposed rule? Why?

3. In the alternative, should the FDIC

adopt some other rule? Under what

circumstances should funds received by

an insured depository institution not be

insurable as ‘‘deposits’’?

4. What should be the treatment of

funds underlying ‘‘payroll cards’’?

5. Will the proposed rule affect the

operation of the deposit limitations in

section 3(d) of the Bank Holding

Company Act or section 44(b) of the FDI

Act?

6. Should the FDIC adopt the

proposed definition of ‘‘stored value

card’’? Can this definition be improved?

What are the differences (if any)

between ‘‘stored value cards’’ and other

types of bank cards such as ‘‘prepaid

cards,’’ ‘‘debit cards,’’ ‘‘check cards’’ and

‘‘payroll cards’’?

7. Should the FDIC adopt specific

disclosure requirements? If so, do the

disclosures provided as examples in the

preamble adequately address consumer

confusion about the insurability of

funds underlying stored value products?

Are there ways to reduce the costs or

burdens associated with providing

disclosures about the insurability of

such funds?

8

‘‘check cards’’ and

‘‘payroll cards’’?

7. Should the FDIC adopt specific

disclosure requirements? If so, do the

disclosures provided as examples in the

preamble adequately address consumer

confusion about the insurability of

funds underlying stored value products?

Are there ways to reduce the costs or

burdens associated with providing

disclosures about the insurability of

such funds?

8. Should the FDIC adopt any special

rules governing the insurance coverage

of any ‘‘deposits’’ underlying stored

value cards?

9. Are insured depository institutions

offering stored value products or

systems that are not addressed in this

notice of proposed rulemaking? Please

explain.

10. In the case of a stored value card

system in which the cards are issued by

an insured depository institution, and

the depository institution maintains a

pooled ‘‘reserve account’’ reflecting its

liabilities for all cards but does not

maintain individual accounts or

subaccounts reflecting its liabilities to

individual cardholders, how does the

institution keep track of its liabilities?

What technology is used? How does the

institution know when and whether to

make payments to merchants?

Paperwork Reduction Act

The FDIC believes that insured

depository institutions—in issuing

stored value cards—must make clear

and accurate disclosures as to whether

the underlying funds are insured. The

subject of disclosures is discussed in

Section VIII.

Requiring the disclosure of

information to the public may qualify as

a ‘‘collection of information’’ for

purposes of the Paperwork Reduction

Act (44 U.S.C. 3501 et seq.). See 5 CFR

1320.3(c). In this case, however, the

required disclosure is not a ‘‘collection

of information’’ because the FDIC (in

Section VIII) is providing specific

language that insured depository

institutions may use in disclosing

information to the public. See 5 CFR

1320.3(c)(2)

fy as

a ‘‘collection of information’’ for

purposes of the Paperwork Reduction

Act (44 U.S.C. 3501 et seq.). See 5 CFR

1320.3(c). In this case, however, the

required disclosure is not a ‘‘collection

of information’’ because the FDIC (in

Section VIII) is providing specific

language that insured depository

institutions may use in disclosing

information to the public. See 5 CFR

1320.3(c)(2). Moreover, insured

depository institutions must ascertain

the information in question—whether

funds underlying stored value cards

qualify as ‘‘deposits’’—in completing

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Federal Register / Vol. 69, No. 74 / Friday, April 16, 2004 / Proposed Rules

their Call Reports. Thus, nothing in this

notice of proposed rulemaking requires

an insured depository institution to

collect information that the institution

otherwise would not collect.

In summary, no collections of

information pursuant to the Paperwork

Reduction Act are contained in the

proposed rule. Consequently, no

information has been submitted to the

Office of Management and Budget for

review.

Regulatory Flexibility Act

Request for Comments

In accordance with section 3(a) of the

Regulatory Flexibility Act (5 U.S.C.

603(a)), the FDIC must publish an initial

regulatory flexibility analysis with this

proposed rulemaking or certify that the

proposed rule, if adopted, will not have

a significant economic impact on a

substantial number of small entities. For

purposes of the required analysis or

certification, depository institutions

with total assets of $150 million or less

are considered to be ‘‘small entities.’’

For the reasons set forth below, the

FDIC hereby certifies pursuant to 5

U.S.C. 605(b) that the proposed rule, if

adopted, will not have a significant

economic impact on a substantial

number of small entities

of small entities. For

purposes of the required analysis or

certification, depository institutions

with total assets of $150 million or less

are considered to be ‘‘small entities.’’

For the reasons set forth below, the

FDIC hereby certifies pursuant to 5

U.S.C. 605(b) that the proposed rule, if

adopted, will not have a significant

economic impact on a substantial

number of small entities.

Economic Impact

This proposed rulemaking is not

intended to apply to any issue except

the meaning of ‘‘deposit’’ under the FDI

Act. Though this rulemaking may affect

the manner in which some insured

depository institutions report ‘‘deposits’’

in their Call Reports, the rulemaking

generally will not impose new

obligations on insured depository

institutions because such institutions—

irrespective of this rulemaking—must

file Call Reports.

Notwithstanding the above, the FDIC

may be imposing new obligations on

insured depository institutions in

directing such institutions—when

issuing stored value cards—to make

clear and conspicuous disclosures as to

whether the underlying funds are

insured. The subject of disclosures is

discussed in Section VIII. The FDIC

believes that clear, conspicuous

disclosures are necessary in order to

prevent confusion on the part of the

public. See 12 U.S.C. 1819 (investing

the FDIC with general rulemaking

authority with respect to deposit

insurance). In any event, the FDIC

believes that the cost of adding clear

and conspicuous disclosures to stored

value cards will not result in a

significant economic impact on a

substantial number of small entities.

This conclusion is based upon the fact

that the cost will involve the design of

a depository institution’s stored value

cards, not the production of such cards.

Adding a one-sentence disclosure to a

card should involve at most only a

minimal cost

and conspicuous disclosures to stored

value cards will not result in a

significant economic impact on a

substantial number of small entities.

This conclusion is based upon the fact

that the cost will involve the design of

a depository institution’s stored value

cards, not the production of such cards.

Adding a one-sentence disclosure to a

card should involve at most only a

minimal cost. Indeed, the addition of a

clear and conspicuous disclosure about

insurance coverage may reduce the

institution’s costs in answering

questions from the public about FDIC

insurance coverage.

Although this proposed rulemaking

should not create a significant adverse

economic impact on an insured

depository institution, and may even

result in a modest net benefit, the FDIC

believes that insured depository

institutions should be given an

opportunity to provide comments on the

subject. Accordingly, comments are

requested (see below).

The FDIC is not aware of any Federal

rules that would duplicate, overlap or

conflict with a requirement that stored

value cards issued by insured

depository institutions must include

clear and conspicuous disclosures about

insurance coverage.

Request for Comments

The FDIC requests comments as to the

cost of adding a clear and conspicuous

disclosure about insurance coverage to

stored value cards issued by insured

depository institutions. Commenters

may wish to address the following: (1)

The number of small entities that are

issuing stored value cards or may issue

stored value cards; (2) the manner and

impact of adding a clear and

conspicuous disclosure about insurance

coverage to stored value cards; and (3)

alternative methods of preventing

confusion on the part of the public.

Impact on Families

The proposed rule would not affect

family well-being within the meaning of

section 654 of the Treasury and General

Government Appropriations Act,

enacted as part of the Omnibus

Consolidated and Emergency

Supplemental Appropriations Act of

1999 (Pub. L

urance

coverage to stored value cards; and (3)

alternative methods of preventing

confusion on the part of the public.

Impact on Families

The proposed rule would not affect

family well-being within the meaning of

section 654 of the Treasury and General

Government Appropriations Act,

enacted as part of the Omnibus

Consolidated and Emergency

Supplemental Appropriations Act of

1999 (Pub. L. 105–277, 112 Stat. 2681).

List of Subjects in 12 CFR Part 303

Administrative practice and

procedures, Authority delegations

(Government agencies), Banks, Banking,

Bank merger, Branching, Foreign

investments, Golden parachute

payments, Insured branches, Interstate

branching, Reporting and recordkeeping

requirements, Savings associations.

For the reasons set forth in the

preamble, the Board of Directors of the

Federal Deposit Insurance Corporation

proposes to amend part 303 of Title 12

of the Code of Federal Regulations as

follows:

PART 303—FILING PROCEDURES

1. The authority citation for part 303

continues to read as follows:

Authority: 12 U.S.C. 378, 1813, 1815, 1816,

1817, 1818, 1819 (Seventh and Tenth), 1820,

1823, 1828, 1831a, 1831e, 1831o, 1831p–1,

1835a, 3104, 3105, 3108, 3207; 15 U.S.C.

1601–1607.

2. New § 303.16 is added to read as

follows:

§ 303.16

The definition of ‘‘deposit’’ as that

term relates to funds underlying stored

value cards

(a) Purpose. The term ‘‘deposit’’ is

defined in section 3(l) of the Federal

Deposit Insurance Act (12 U.S.C.

1813(l)). The purpose of this section is

to clarify the meaning of ‘‘deposit’’ as

that term relates to funds at insured

depository institutions underlying

stored value cards.

lows:

§ 303.16

The definition of ‘‘deposit’’ as that

term relates to funds underlying stored

value cards

(a) Purpose. The term ‘‘deposit’’ is

defined in section 3(l) of the Federal

Deposit Insurance Act (12 U.S.C.

1813(l)). The purpose of this section is

to clarify the meaning of ‘‘deposit’’ as

that term relates to funds at insured

depository institutions underlying

stored value cards.

(b) Funds received from cardholders,

or funds received from others on behalf

of cardholders or for payment to

cardholders, in exchange for stored

value cards issued by the insured

depository institution. In the case of

funds received by an insured depository

institution from cardholders, or funds

received from others on behalf of

cardholders or for payment to

cardholders, in exchange for stored

value cards issued by the depository

institution, the funds are ‘‘deposits’’

unless:

(1) The depository institution records

its liabilities for such funds in an

account representing multiple

cardholders; and

(2) The depository institution

(directly or through an agent) maintains

no supplemental records or subaccounts

reflecting the amount owed to each

cardholder. Nothing in this

subparagraph (b)(2) is intended to

suggest that an insured depository

institution may ignore any law or

regulation that may otherwise require

the depository institution to maintain

records reflecting the amount owed to

each cardholder.

stitution

(directly or through an agent) maintains

no supplemental records or subaccounts

reflecting the amount owed to each

cardholder. Nothing in this

subparagraph (b)(2) is intended to

suggest that an insured depository

institution may ignore any law or

regulation that may otherwise require

the depository institution to maintain

records reflecting the amount owed to

each cardholder.

(c) Funds received from cardholders

in exchange for stored value cards

issued by a sponsoring company. In the

case of funds received by an insured

depository institution from cardholders

in exchange for stored value cards

issued by a company (‘‘sponsoring

company’’) and not issued by the

insured depository institution (i.e., the

insured depository institution serves as

an agent of the sponsoring company in

collecting funds and distributing cards),

the funds shall be classified as follows:

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Federal Register / Vol. 69, No. 74 / Friday, April 16, 2004 / Proposed Rules

(1) The funds are ‘‘deposits’’ if the

depository institution bears an

obligation to forward the funds to the

sponsoring company or to hold the

funds for the sponsoring company. After

the forwarding of such funds to the

sponsoring company, or the withdrawal

of such funds by the sponsoring

company from the depository

institution, the funds shall cease to be

‘‘deposits’’ at the depository institution.

(2) The funds are not ‘‘deposits’’ if the

depository institution bears no

obligation to forward or hold the funds

(e.g., the depository institution

purchases the cards from the sponsoring

company and then resells the cards to

the cardholders).

(d) Funds placed by sponsoring

companies. In the case of funds placed

at an insured depository institution by

a sponsoring company for the purpose

of making payments on stored value

cards issued by that company, the funds

are ‘‘deposits.’’

or hold the funds

(e.g., the depository institution

purchases the cards from the sponsoring

company and then resells the cards to

the cardholders).

(d) Funds placed by sponsoring

companies. In the case of funds placed

at an insured depository institution by

a sponsoring company for the purpose

of making payments on stored value

cards issued by that company, the funds

are ‘‘deposits.’’

(e) Insurance coverage. In the case of

any funds that qualify as ‘‘deposits’’

under this section, the insurance

coverage of such funds shall be

governed by the rules set forth in part

330 of this chapter.

(f) Definition of ‘‘stored value card.’’

For the purposes of this section, the

term ‘‘stored value card’’ means a device

that enables the cardholder to transfer

the underlying funds (i.e., the funds

received by the issuer of the card in

exchange for the issuance or reloading

of the card) to a merchant at the

merchant’s point of sale terminal.

Dated at Washington, DC, this 6th day of

April, 2004.

Authorized to be published in the Federal

Register by Order of the Board of Directors

of the Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 04–8613 Filed 4–15–04; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 2003–CE–58–AD]

RIN 2120–AA64

Airworthiness Directives; Stemme

GmbH & Co. Models S10, S10–V, and

S10–VT Sailplanes

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: The FAA proposes to adopt a

new airworthiness directive (AD) for all

Stemme GmbH & Co. Models S10, S10–

V, and S10–VT sailplanes. This

proposed AD would require you to

remove the drive shaft assembly and

ship it to the service department of

Stemme GmbH & Co. The engine is

mounted behind the two side-by-side

seats. The engine combined with the

carbon fiber drive shaft turn the

centrifugally extended propeller

opt a

new airworthiness directive (AD) for all

Stemme GmbH & Co. Models S10, S10–

V, and S10–VT sailplanes. This

proposed AD would require you to

remove the drive shaft assembly and

ship it to the service department of

Stemme GmbH & Co. The engine is

mounted behind the two side-by-side

seats. The engine combined with the

carbon fiber drive shaft turn the

centrifugally extended propeller. After

an initial visual inspection, the service

department will perform an operational

check to determine whether the drive

shaft can be further used or must be

replaced. Once corrective action is

identified, a drive shaft will be shipped

to you for installation. This proposed

AD is the result of mandatory

continuing airworthiness information

(MCAI) issued by the airworthiness

authority for Germany. We are issuing

this proposed AD to detect and correct

incorrectly glued drive shafts, which

could result in drive shaft failure.

During self-takeoff or critical periods of

landing, failure of the drive shaft could

lead to loss of control of the sailplane.

DATES: We must receive any comments

on this proposed AD by May 26, 2004.

ADDRESSES: Use one of the following to

submit comments on this proposed AD:

• By mail: FAA, Central Region,

Office of the Regional Counsel,

Attention: Rules Docket No. 2003–CE–

58–AD, 901 Locust, Room 506, Kansas

City, Missouri 64106.

• By fax: (816) 329–3771.

• By e-mail: 9-ACE-7-Docket@faa.gov.

Comments sent electronically must

contain ‘‘Docket No. 2003–CE–58–AD’’

in the subject line. If you send

comments electronically as attached

electronic files, the files must be

formatted in Microsoft Word 97 for

Windows or ASCII.

You may get the service information

identified in this proposed AD from

Stemme GmbH & Co. AG,

Flugplatzstrabe F 2, Nr. 7, D–15344

Strausberg, Germany.

You may view the AD docket at FAA,

Central Region, Office of the Regional

Counsel, Attention: Rules Docket No.

2003–CE–58–AD, 901 Locust, Room

506, Kansas City, Missouri 64106

must be

formatted in Microsoft Word 97 for

Windows or ASCII.

You may get the service information

identified in this proposed AD from

Stemme GmbH & Co. AG,

Flugplatzstrabe F 2, Nr. 7, D–15344

Strausberg, Germany.

You may view the AD docket at FAA,

Central Region, Office of the Regional

Counsel, Attention: Rules Docket No.

2003–CE–58–AD, 901 Locust, Room

506, Kansas City, Missouri 64106. Office

hours are 8 a.m. to 4 p.m., Monday

through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT:

Gregory Davison, Aerospace Engineer,

Small Airplane Directorate, ACE–112,

901 Locust, Room 301, Kansas City,

Missouri 64106; telephone: (816) 329–

4130; facsimile: (816) 329–4090.

SUPPLEMENTARY INFORMATION:

Comments Invited

How do I comment on this proposed

AD? We invite you to submit any

written relevant data, views, or

arguments regarding this proposal. Send

your comments to an address listed

under ADDRESSES. Include ‘‘AD Docket

No. 2003–CE–58–AD’’ in the subject

line of your comments. If you want us

to acknowledge receipt of your mailed

comments, send us a self-addressed,

stamped postcard with the docket

number written on it. We will date-

stamp your postcard and mail it back to

you.

Are there any specific portions of this

proposed AD I should pay attention to?

We specifically invite comments on the

overall regulatory, economic,

environmental, and energy aspects of

this proposed AD. If you contact us

through a nonwritten communication

and that contact relates to a substantive

part of this proposed AD, we will

summarize the contact and place the

summary in the docket. We will

consider all comments received by the

closing date and may amend this

proposed AD in light of those comments

and contacts.

Discussion

What events have caused this

proposed AD? The Luftfahrt-Bundesamt

(LBA), which is the airworthiness

authority for Germany, recently notified

FAA that an unsafe condition may exist

on all Stemme GmbH & Co. Models S10,

S10–V, and S10–VT sailplanes

We will

consider all comments received by the

closing date and may amend this

proposed AD in light of those comments

and contacts.

Discussion

What events have caused this

proposed AD? The Luftfahrt-Bundesamt

(LBA), which is the airworthiness

authority for Germany, recently notified

FAA that an unsafe condition may exist

on all Stemme GmbH & Co. Models S10,

S10–V, and S10–VT sailplanes. The

LBA reports that two drive shafts have

failed during normal operation of the

sailplane. The flanges of the drive shafts

started to rotate within the carbon fibre

reinforced plastics-tube (CFRP-tube),

while the drive shafts still appeared to

be intact when looking at them from the

outside. The metal flanges on both ends

of the drive shafts might not have been

properly glued to the CFRP-tube.

What are the consequences if the

condition is not corrected? Incorrectly

glued drive shafts could result in drive

shaft failure. This failure could lead to

loss of control of the sailplane.

Is there service information that

applies to this subject? Stemme GmbH

& Co. has issued Service Bulletin No.

A31–10–058, dated November 8, 2001.

What are the provisions of this service

information? The service bulletin

includes procedures for the inspection

of the drive shaft.

What action did the LBA take? The

LBA classified this service bulletin as

mandatory and issued German AD

Number 2002–113, dated May 2, 2002,

to ensure the continued airworthiness of

these sailplanes in Germany.

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14:53 Apr 15, 2004

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16APP1