ALEXANDRIA, Va. — The NCUA acknowledged that it is considering defining money placed on credit union-issued gift and other prepaid cards as deposited funds covered by share insurance.
The FDIC announced Nov. 13 that it was doing so in regard to gift cards issued by FDIC-insured banks.
The FDIC made its announcement quietly through a legal opinion letter. In the letter, the agency's general counsel said the insurance
coverage will extend to cards sold by retailers but actually issued by a partner bank.
These funds will also be counted in the assessment of any insurance fees, the federal insurer said, because they will be counted as "deposits" even if the card purchaser or recipient does not have a direct relationship with the bank.
In a recently issued document summarizing deposit insurance, the NCUA wrote that share insurance covers "all types of deposits received by a credit union in its usual course of business. For example, savings accounts, share draft (checking) accounts, money market accounts and share certificates."
The agency also made clear it does not insure money invested in stocks, bonds, municipal bonds or other securities (such as mutual funds, annuities) and insurance products (such as automobile and life insurance). The document does not speak to the status of gift cards, and the agency did not comment other than to say it was considering something similar to the FDIC's decision.
Jeff Russell, the newly named CEO of the TMG Card Services, a leading CUSO providing credit unions with prepaid card services, estimated that extending share insurance to prepaid cards would have a beneficial impact on the CU prepaid card market, albeit a marginal one.
"I don't expect it will have any impact on the gift card market at all," Russell said. "Gift cards are used within 60 or 90 days from when they are received. It might have an impact in the market for other cards such as payroll or health payment account cards," he said, "but we have found the strongest draws for prepaid cards to be convenience, safety and ease of use. People who are using prepaid cards are seeking to replace cash."
–dmorrison@cutimes.com

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After FDIC Move, NCUA Considers Offering Insurance on Gift and Other Prepaid Cards

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