Banking Interpretations

NYSBL 640 & 641

August 1, 2007

Dear Ms. [---]

Your letter correspondence [---] to the attention of Ms. Rosanne Notaro, has been referred to me for reply. Please excuse the delay in our response. In your letter, you requested the opinion of the Banking Department whether [---] Community College (the “School"), based upon the program described in your letter, is required to be licensed as a money transmitter under Article XIII-B of the New York Banking Law.

The School has a campus ID card on which students can deposit money. The students can then use that money around the campus for purchases (bookstore, dining, laundry, etc). The School wants to broaden the use of the campus ID card for purchases to local businesses by entering contracts with third party vendors.  Vendors would access the School's database to make sure funds were available on the ID card prior to completing a purchase transaction.  Funds would be paid to the vendors periodically (e.g., weekly) by wire transfer or check for completed purchase transactions.  The students are charged card fees only once each semester and processing fees only if they want to get their deposits back.

Under the proposal outlined above and in your letter, we have no objection to the School proceeding without becoming licensed in New York as a money transmitter. We express no opinion on the necessity for the School to obtain a license to transfer money other than as specified in the preceding paragraph, Banking Law, Section 641.1 provides, in part, that:

No person shall engage in the business of selling or issuing checks, or engage in the business of receiving money for transmission or transmitting the same, without a license therefor 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... (Emphasis Added.)

As to the proposal, the issue is whether the issuance of cards and receipt of funds in the account is within the meaning of the term "in the business of selling or issuing checks, or ... in the business of receiving money for transmission "as used in Section 641, quoted and highlighted above.

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". (Emphasis Added.) In turn, a "payment instrument" is defined in Section 640(5) of the Banking Law to mean

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. A "payment instrument" does not, however, include any instrument which is redeemable by the issuer in merchandise or services. (Emphasis Added.)

The Banking Department has previously determined that "gift certificates" are included in the definition of "payment instrument" when the gift certificates in question were not both issued and redeemed by the same entity. In the present case, the ID cards are issued by the School, while both the School and vendors will provide merchandise and services. Since the cards are redeemable by the School, they would appear to fall outside the definition of a "payment instrument" and issuance of the ID cards would not appear to be an activity that requires a license as a money transmitter.

Further light on the scope and meaning of the term "in the business of selling or issuing checks, or the business of receiving money for transmission," which is not clear on the face of the statute, may be found in the legislative history.
The legislative history of L. 1963 C. 1000, adding Article XIII-B to the Banking Law, provides in part as follows:

"The business sought to be supervised consists, essentially, of the sale of traveler's checks and money orders, and the transmission of funds overseas. It involves, therefore, the receipt of funds from the public for transmission or for payment upon demand at a later date. The inherent possibilities of abuse through fraud, defalcation or insolvency are obvious."

The elements of the business sought to be supervised by the statute appear to differ materially from those involved in the proposed program, which will be a closed system that has a limited purpose and a relatively small number of users, and will not be available to the general public. Therefore, the activity appears to be one at which the statute is not directed.

Additionally, the proposed arrangement appears to be one in which the School has, either actually or constructively, a power of attorney on students' accounts.  The opinion rendered herein is based on the facts set forth in your letter and may not be applicable to any other situation.

I trust that this letter is responsive to your inquiry.

Very truly yours,

Alan Weinberg
Assistant Counsel

cc: R. Stone