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State of California
Department of Financial Institutions
William S. Haraf, Commissioner of Financial Institutions


To: Ken Sayre-Peterson
Acting General Counsel

Date: March 24, 2011

From: Diana H. Nishiura
Senior Counsel

Subject: Whether a State-Chartered Bank May Engage in the Business
of Issuing Open System Prepaid Cards


_______________ (__________) plans to purchase a partial business unit of _______________ (__________) which consists of its _______________ (__________). The name is to be changed to the _______________ after the sale. __________ is engaged in the business of issuance of _______________ (sometimes referred toas _______________), and providing services related thereto including network sponsorship activities, customization, development and implementation of prepaid card programs, ACH processing, network settlement and payment processing.1 __________ is to take over the __________ business operations, including the deposit accounts of __________/__________customers. If the application is approved, __________ would assume the deposit liabilities of __________ relating to the __________ operations which consist of the operating funds of the customers of __________ and reserve balances held to cover chargebacks and other obligations of _______________ customers pursuant to Visa and MasterCard network rules and regulations. __________ has about 40 clients, which appear to consist primarily of sellers of __________ prepaid cards that are intended for use as a means of redemption for money or monetary value or payment for goods or services usable with multiple sellers of goods or services.2
In contrast, in _______________, the card is usable with only one merchant. According to _______________, Executive Vice President of __________, the __________ of __________ issues no _______________. _______________ are often loosely referred to as “stored value

Ken Sayre-Peterson March 24, 2011 Page 2


Apparently, there is no known DFI legal precedent that determines whether a state bank may engage in the business of issuing _______________ as defined in Paragraph 1 above to customers such as processors and program managers, who then sell and market the prepaid cards. Therefore, that is the question presented here.


For the reasons hereinafter stated, my conclusion is that a state bank may engage in the business of issuing _______________ (stored value cards) for third party customers who sell them, and provide services related thereto, including network sponsorship activities and holding deposits of those customers as operating funds and reserve balances, subject to approval of the FDIC. However, such activities should comply with the applicable requirements of state law including Title 1.4A, entitled Gift Certificates (defined to include certain gift cards), commencing with section 1749.45 of the Civil Code.


Section 24 of the Federal Deposit Insurance Act (FDI Act), 12 U.S.C.1831a(a), provides that a state bank may not engage as principal in any activity not permissible for a national bank unless the FDIC has determined that the activity would pose no significant risk to the Deposit Insurance Fund and the state bank is in compliance with applicable capital standards as determined by the appropriate federal banking agency. __________ has been engaging in the business of issuing _______________ (stored value cards) for customers who sell them, through the __________ of __________. Therefore, it appears that the activity is permissible for a national bank. Accordingly, I would conclude that the same activity is permissible for a state bank, subject to approval by the FDIC. The activities of __________ conducted under state law should comply with all applicable requirements of state law, including Title 1.4A of the Civil Code. Additionally, the issuance of stored value cards by a state bank is exempted from licensing under the Money Transmission Act pursuant to Financial Code section 1805(d).
My review of the full application of __________ to acquire a partial business unit of __________ consisting of the __________ will be set forth in a separate memorandum.

1 According to the _______________ application and __________, Executive VP of __________ and proposed head
of the __________ of __________ after the proposed sale.
2 Ibid.
3 See Financial Code section 1801(v) and

cc: John Ross, Department of Financial Institutions, Los Angeles Sukyee Lok, Department of Financial Institutions, Los Angeles Legal Opinion File, Department of Financial Institutions, Los Angeles Legal Opinion File, Department of Financial Institutions, San Francisco

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Last updated: Jun 28, 2019 @ 5:50 pm