Q: Does the primary purpose exception apply to companies that sell or distribute general purpose prepaid cards?
A: No. Some companies operate general purpose prepaid card programs, in which prepaid cards are sold to members of the public at retail stores or other venues. After collecting funds from the cardholders, the retail store or the card company (as agent for the cardholders) may place the funds into a custodial account at an insured depository institution. The funds may be accessed by the cardholders through the use of their cards.
The retail stores and the card companies that sell or distribute general purpose prepaid cards (or similar products) are not covered by the primary purpose exception. Rather, in placing the cardholders’ funds into custodial accounts at insured depository institutions, such companies (or the retail stores that may be involved in the placement of the deposits) qualify as deposit brokers. Therefore, the funds qualify as brokered deposits.