Include certain prepaid card accounts
under pass-through insurance, NASCUS writes
JULY 14, 2015 -- Federal share insurance coverage should be passed-through to certain prepaid card accounts, similar to that coverage provided for IOLTA accounts and similar escrow accounts, NASCUS told NCUA in a comment letter.
NASCUS was commenting on NCUA’s proposed rule for Part 745 of its regulations, covering “interest on lawyer trust accounts” (IOLTAs) and certain other escrow accounts. The proposed rule would implement legislation passed by Congress in 2014 providing insurance coverage of these accounts. In the letter, NASCUS noted it strongly supports the regulatory changes implementing pass-through coverage for the accounts.
Further, NASCUS noted just as strongly its view that NCUA should exercise its authority to extend pass-through coverage to the pre-paid card accounts (also known as “stored-value cards”).
In its request for comments, NCUA acknowledged that some prepaid card accounts have similar characteristics to escrow and IOLTA accounts – yet the agency denied the entire class of accounts because others do not have the similar features.
“A better approach would be to allow those prepaid card accounts that have the conforming characteristics and decline to provide pass-through coverage for those that do not,” NASCUS wrote.
“Prepaid cards that do present similar characteristics to escrow accounts would necessarily maintain detailed and accurate records of the underlying individuals,” NASCUS pointed out. “These cards, like an escrow account, facilitate a specific transaction between individuals. Whether the exact amount an of employees weekly pay, the weekly or monthly benefits payment to an individual, or the loan proceeds funding a student’s semester of study, these prepaid card accounts represent more than a passing transaction between individuals, they represent an ‘established relationship’ of trust, with the account holder maintaining the ‘funds for the benefit and future use of the individual.’”
NASCUS noted those features match two of the three primary characteristics NCUA defined for a “similar escrow account,” lacking, in some cases, only the licensed professional.
In other comments, NASCUS recommended including escrow accounts used to facilitate purchase transactions in a similar fashion as a realtor escrow account (which the agency has proposed for pass-through share insurance). “Such accounts may include escrow accounts used for the purchases of boats and commercial vessels, as well as planes. Escrow accounts may also be used to facilitate the purchase of a business. In addition to these purchase related escrow accounts, NCUA should include escrow accounts used to hold security deposits over extended periods of times such as those used in landlord-tenant transactions,” NASCUS wrote.