01-4
01-4
June 7, 2001
Re: Sale of ATM – Accessible Cards
Dear M ________:
I. INTRODUCTION.
This responds to your letter of January 19, 2001. Your letter asked whether the sale by your client (“Company”) of a stored value card product (a “Card”) is subject to regulation by the Department of Financial Institutions under the Payment Instruments Law (Division 16 (commencing with section 33000) of the Financial Code), the Travelers Checks Act (Chapter14A (commencing with section 1851), Division 1 of the Financial Code) or Chapter 14 (commencing with section 1800), Division 1 of the Financial Code (The “Transmitters of Money Abroad Law” or “TMA Law”). You also asked us to confirm our position regarding regulation of stored value cards under the Banking Law (Division 1 (commencing with section 99) of the Financial Code).
As discussed below, it is as our view that sale of Cards in California is not subject to the Payment Instruments Law or the Travelers Checks Act. Such sales may be subject to the TMA Law if Cards are sold for the express purpose of effecting delivery of currency in foreign countries. Respecting regulation as banking, what you characterized as the “safe harbor” position reflected in our letter of January 30, 1997, would apply to the sale of Cards.
II. DESCRIPTION OF SERVICE.
You described the business of selling Cards as follows:
“A Customer will purchase a Card from an independent retailer* (the “Retailer”). The Company expects that the typical amount of value initially placed or stored on a Card will be approximately $100; however, any amount up to $1,000 will be accepted by the Retailer. The Customer will pay for the Card with cash or, at the risk of the Retailer, other payment means* in the amount of value to be input into the Card*. The Customer may use the Card to place domestic or foreign telephone calls using an 800 access number. The per-minute charges for long distance telephone calls by a Customer are extremely competitive. For this reason the Company believes the primary use for the Card will be to make long distance calls. The Customer may also use the Card to obtain cash at both foreign and domestic ATM machines or make purchases at POS machines that accept debit cards.
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*Footnote in original omitted here.
– – – – – – – – – – – – – – – – -End Footnotes- – – – – – – – – – – – – – – – –
“Both the Card’s serial number and PIN will be encoded in the magnetic stripe on the back of the card. The Customer will obtain the PIN needed to use the Card by scratching off a covering over a number printed in the packet provided with the Card. Each Card packet will contain instructions concerning the Card and a duplicate Card which can be given by the Customer to a family member or other person to permit that person to place phone calls, make POS purchases and/or obtain cash at ATMs so long as he or she knows the PIN. Thus, a family member or other recipient of the Card will be able to access funds from any ATM in the United States and abroad.
“The Customer may stop payment on any lost or stolen Cards and can obtain a new Card and PIN that can access the balance remaining on a lost or stolen card. Additionally, the value available for each Card may be renewed at any time by the Customer at any participating Retailer up to the maximum limit of $1,000.
“Neither Company nor any Retailer will open an individual bank account on behalf of any Customer as a consequence of the purchase of a Card. Instead, information as to the value available for each Customer will be maintained at a centralized database by an independent processor (the “Processor”) pursuant to a contract with the Company. Authorization for specific transactions will be given by the Processor based on the centrally maintained records of value associated with each Card.
“Proceeds from the sale of the Cards will be maintained in a commercial bank deposit account in the name of the Company. The Customer will receive no interest on the funds, nor will the Customer have any ownership interest in the Company’s commercial bank deposit account.”
III. DISCUSSION.
A. The Payment Instruments Law.
As you point out, the Payment Instruments Law regulates the sale of payment instruments. “Payment instrument” is defined in Financial Code section 33059 as, “[a]ny instrument (whether or not negotiable) for the transmission or payment of money which is designated on its face by the term ‘money order’ or by any substantially similar term” or “[a]ny check, draft, or other instrument (whether or not negotiable) for the transmission or payment of money, if payable on demand.”
The Card does not qualify as a payment instrument under the first part of this test because it is not designated on its face as a “money order.”
Under the second part of the test, a card might be viewed as “an instrument (whether or not negotiable) for the transmission or payment of money” which is payable on demand. However, it has been our view that the term “other instrument” as used on Section 33059 means a paper instrument, like check or draft which is governed by Division 3 (“Division 3”) the California Uniform Commercial Code (“UCC”).
It is appropriate to refer to Division 3 in construing the Payment Instruments Law because the Payment Instruments Law incorporates terminology and concepts of liability relating to a commercial paper that is governed by Division 3. For example, section 33524 of the Payment Instruments Law provides: “Each licensee shall be liable as a maker in accordance with the California Uniform Commercial Code with respect to each payment instrument issued by it which is sold in this state by it, directly or indirectly through a California agent.” (Emphasis added.) Throughout the Payment Instruments Law reference is made to the issuance of payment instruments and to a licensee as an issuer. See, e.g., the definitions of “licensee” (Financial Code § 33056) and “agent” (Financial Code § 33043). The terms “issue” and “issuer” are defined in section 3105 of Division 3 in relation to delivery of and the person who delivers an instrument governed by Division 3. Section 3104(a) of Division 3 provides that an instrument must be “an unconditional promise to or order to pay a fix amount of money . . .” Section3103(6) of Division3 defines “order” as a “written instruction to pay money signed by the person giving the instruction.” Section 3303(a)(9) of Division 3 defines “promise” as a “written undertaking to pay money signed by the person undertaking to pay.”
Accordingly, we have taken the view that for purposes of the Payment Instrument Law, an “instrument” is a written, signed document that it is similar in nature to a check or a draft, even though not negotiable. We have, therefore, not viewed electronic media, such as stored value cards, as payment instruments.
B. Travelers Checks Act.
The Travelers Checks Act regulates sales of travelers checks, and prohibits their sale in California by anyone (except certain exempt entities) not licensed under the Travelers Checks Act. See, Financial Code §§ 1853, 1854.
As you point out, a Card is not a travelers check as defined in section 1852(i) of the Travelers Checks Act, which states:
“(i) ‘Travelers check’ means an instrument for the payment of money which:
(1) Is designated on its face by the term ‘travelers check’ or by any substantially similar term or its commonly known and marketed as a traveler’s check . . . .
(2) (A) If issued in United States currency, is in the sum of ten dollars ($10) or a whole multiple thereof, if less than one hundred dollars ($100), or in the sum of one hundred dollars ($100) or a whole multiple thereof;
(B) If issued in any foreign currency, is in an even denomination of such currency;
(3) Contains a provision for a specimen signature of the purchaser to be completed at the time of purchase, and
(4) Contains a provision for a countersignature of the purchaser to be completed at the time of negotiation.”
A Card fails to qualify as a travelers check because it is not designated as such on its face, it is not limited to issuance in the denominations specified in Section 1852(i)(1), and it does not require a customer’s signature at the time of purchase or negotiation.
C. The TMA Law.
Section 1800.3 of the TMA Law provides in pertinent part as follows:
“(a) No person shall engage in the business of receiving money for the purpose of transmitting the same or its equivalent to foreign countries without first obtaining a license from the commissioner . . . .” (Emphasis added)
Accordingly, a person is not subject to the TMA Law unless the person engages in the business of receiving money for the express purpose of transmitting or delivering the same or its equivalent to a foreign country.
We cannot determine from your letter whether some or a substantial part of the money received by your client is expressly intended at the time a Card is sold to be delivered abroad in the form of currency through the medium of the Card. The fact that the Card may be used for a purpose other than transmitting money abroad is not necessarily controlling. The express purpose of the sale transaction would govern. Evidence of that purpose might be found in such factors as the manner in which availability of Cards is advertised in the media and at locations where Cards are sold, and in company records reflecting the manner in which Cards are actually used.
We leave it to you to evaluate, based on the foregoing principle, whether the sale of Cards in California is subject to licensure under the TMA Law.
D. Banking.
Finally, there is the question of whether selling Cards in California constitutes doing a banking business. Our position on that issue is the same as expressed in our letter of January 30, 1997, a copy of which is enclosed for convenient reference. In short, we have reserved our opinion on that issue. Should we determine that the sale of Cards does constitute a banking business, we would notify you of our determination, and we would not seek any civil fine or injunctive relief against your client on account of your client’s sale of Cards at anytime before the giving of such notice.
IV. CONCLUSION.
For the reasons discussed above, it is our view that the sale of Cards in California is not subject to regulation under the Payment Instruments Law or the Travelers Checks Act. We have insufficient information to determine whether the sale of Cards is subject to regulation under the TMA Law. Finally, respecting regulation of the sale of Cards as banking, the policy stated in our letter of January 30, 1997 would apply.
This Department administers, among other laws, the Banking Law, the TMA Law, the Travelers Checks Act, and the Payment Instruments Law. We express no opinion as to any law, state or federal, other than those laws. Furthermore, this response is limited to the facts and circumstances set forth above. Should any of the facts or circumstances change, our answers might be different.
If you have any questions concerning this matter, please feel free to call me at (415) 263-8512.
Very truly yours,
DONALD R. MEYER Commissioner of Financial Institutions
By
THOMAS M. LOUGHRAN
Senior Counsel
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