Banking Interpretations

NYSBL 366 and 640(3) and 640(5) and 641(1)

April 14, 2005

[ ]

Re: Retailer Gift Cards

Dear [ ]:

A letter dated January 14, 2005 from [ ] to Sara Kelsey, New York State Banking Department (the "Department"), has been referred to me for response. In the letter [ ] asked for confirmation as to whether a retail store that issues gift cards in this state and redeems same would be required to obtain a check casher or money transmitter's license in order to be involved in the contemplated activities.

As Informed by [ ] a national retail store (the "Retailer") that is interested in offering gift car s to consumers nationwide. The gift card program (the "Program") is incidental to the Retailer's primary business of selling merchandise. The Program will operate in a "closed system," whereby only the Retailer will issue and redeem the cards. The purchaser of the gift card will not be prohibited in any way from giving the card to a third party as a gift. No bank or other third party will be involved in the transaction or have access to any of the Program funds. There are no expiration dates, dormancy fees or transaction fees associated with the program. The program will permit consumers to redeem their gift cards for cash with such redemption obtained only from the Retailer.

The Retailer would not be required to obtain a license as a check casher. According to Section 366 (1) of the Banking Law:

"No person, partnership, association or corporation shall engage in the business of cashing checks, drafts or money orders for a consideration without first obtaining a license from the superintendent."

Although one can argue that redemption might be considered "cashing," the above-recited statute would not be applicable because in this because a "gift card" would not be considered a "check, draft or money order." Therefore, the Retailer would not need to obtain a license as a check casher in order to conduct the contemplated activities.

Neither would the Retailer be required to obtain a license as a money transmitter. Section 641 (1) of the Banking Law prohibits any person from:

"...engage[ing] in the business of selling or issuing checks, or engage[ing] in the business of receiving money for transmission or transmitting the same, without a license therefore obtained from the superintendent as provided in this article, nor shall any person engage in such business as an agent, except as an agent of a licensee or as agent of a payee."

The Retailer is not "selling or issuing checks." A "check" is defined in Section 640(3) of the Banking Law to mean "any check, draft, travelers check, money order or other instrument for the transmission or payment of money." The gift card proposed to be issued by the Retailer is certainly not a check, draft, travelers check or money order. However, can the gift card be considered a "other instrument for the transmission or payment of money?"

According to Section 640 (5) of the Banking Law, ""[p]ayment instrument" means any check, draft, money order or other instrument or order for the transmission or payment of money, whether or not such instrument or order is negotiable, and sold to one or more persons." However, "[p]ayment instrument does not include a traveler's check, any instrument which is redeemable by the issuer in merchandise or services, a letter of credit or a permissible investment as defined in this section." Because the gift cards in this case would be issued and redeemed by the Retailer for merchandise, they will not be considered payment instruments and, therefore, the Retailer would not be required to obtain a money transmitter's license in order to conduct the contemplated activities in New York.

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan
Assistant Counsel