96-1

March 29, 1996

Re: Electronic Travelers Cheque

Dear M ________:

This is in reference to the proposal of ________ to sell the product it calls an electronic travelers cheque. in California. We write to clarify our letter of January 31, 1996 and to respond to the concerns that ________ has raised on behalf of ________.

In our letter, we concluded that an electronic travelers cheque does not meet the technical requirements of the definition of travelers check. in California Financial Code Section 1852(j) and, therefore, that the sale of electronic travelers cheques is not subject to the California Travelers Checks Act (Chapter 14A (commencing with Section 1851), Division 1 of the California Financial Code). Our ruling does not mean that ________ may not sell electronic travelers cheques in California. Rather, it means only that electronic travelers cheques do not fall under the California Travelers Checks Act.

There may be a question whether selling electronic travelers cheques constitutes accepting deposits and, therefore, whether only a bank may sell electronic travelers cheques in California. See California Financial Code Sections 102 and 3390. This matter has not yet been addressed, and we are reserving this question. However, in case we should decide that selling electronic travelers cheques does constitute accepting deposits and, therefore, that only a bank may sell electronic travelers cheques in California, we would give ________ notice of our decision, and we would not seek any civil fine or injunctive relief against ________ under California Financial Code Section 3395 on account of its sales of electronic travelers cheques in California at any time before the giving of such notice.

In short, then, we are not at this time objecting to ________ proposal to sell electronic travelers cheques in California.

As indicated in our letter of January 31, 1996, we want to explore the possibility of developing legislation to regulate the sale of stored value cards by nonbank entities. We would appreciate it if ________ would let us know whether it is interested in participating in the project. Also, we would be happy to receive any suggestions that ________ may have for such legislation.

Very truly yours,

CONRAD W. HEWITT
Superintendent of Banks

By

THOMAS M. LOUGHRAN
Senior Counsel

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January 31, 1996

Re: ________– Electronic Travelers Cheque

Dear M ________:

This is in response to your letter of January 5, 1996. Your letter requests our opinion as to whether ________ may sell the product it calls an “electronic travelers cheque” under authority of the license issued to it pursuant to the Travelers Check Act (Chapter 14A (commencing with Section 1851) of the California Financial Code) (the Act”).

As we understand your correspondence, the electronic travelers cheque is a stored value card, which a customer could purchase from ________ for an amount equal to the amount stored on the card plus, presumably, a service fee. The card could be used to obtain cash or merchandise through attended point of sale terminals or to obtain cash at ATMs.

In our view, the sale of electronic travelers cheques is a commercial banking function which is not authorized by the Act.

The Act authorizes persons licensed thereunder to issue travelers checks. The definition of “travelers check” is set forth in Section 1852) of the Act, and was intentionally drafted to describe only the type of written instrument for the payment of money traditionally recognized as a travelers check. In our view, the electronic travelers cheque proposed by ________ does not fit within the definition set forth in Section 1852(j).

Section 1852(j) initially provides that a travelers check must be an instrument for the payment of money. A device which facilitates the payment of money, but which fails to set forth in writing essential terms, such as the amount of money available to be drawn, is not an instrument. Webster’s Dictionary defines an “instrument” in the legal context as meaning a formal document, and defines “document” as “anything printed, written, etc.”

Blacks Law Dictionary defines instrument” as a written document. Section 3104 of the California Uniform Commercial Code (the “UCC”) defines “instrument” as a negotiable instrument. The official code comment to Section 3104 makes clear that an instrument must be a written order or promise. Section 1201 (46) of the UCC expressly confines the meaning of “written” to tangible forms of expression. That section provides: “‘Written’ or ‘writing’ includes printing, typewriting or any other intentional reduction to tangible form.” (Emphasis added.) For these reasons, we conclude that the Act requires a travelers check to take the form of a written instrument.

Section 1852(j)(2) of the Act requires that travelers checks be issued in denominations of $10 or $100. This is a standard characteristic of traditional travelers checks. It was the intention of the Legislature that travelers checks issued under the Act have this characteristic. It does not appear that ________ proposes to issue electronic travelers cheques in such denominations. Even if it did, a holder could draw on the balance in any increment he or she chose, and such increments could be amounts less than the full denomination of the electronic travelers cheque. Therefore, the electronic travelers cheque does not meet the requirements of Section 1852(j)(2).

Section 1852(j)(4) requires that a travelers check be an instrument that, “[c]ontains a provision for a countersignature of the purchaser to be completed at the time of negotiation.” This provision requires that the instrument itself contain the provision for countersignature, i.e., that a countersignature be made on the instrument itself. An electronic travelers cheque contains no such provision.

Inasmuch as an electronic travelers cheque is not a “travelers check” as that term is defined in the Act, a license issued under the Act would not authorize sale of electronic travelers checks in California.

We would be interested in receiving any specific suggestions you may have regarding a suitable system for licensing and regulating nonbank entities who may wish to sell products like the electronic travelers cheque.

If you have any questions, please feel free to call me at (415) 263-8512.

Very truly yours,

CONRAD W. HEWITT
Superintendent of Banks

By

THOMAS M. LOUGHRAN
Senior Counsel

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