Q: Does the primary purpose exception apply to companies or organizations that distribute debit cards or similar products that serve multiple purposes? For example, what if a debit card provides access to funds in a bank account but also serves as a college identification card?
A: In evaluating this scenario, the FDIC would consider the following factors: (1) the stated primary purpose of the third party in distributing or marketing the debit cards; (2) the features of the card (such as whether the card is reloadable and whether the card will provide access to a permanent account in the student’s name at the insured depository institution); and (3) the compensation (if any) received by the third party from the bank for distributing or marketing the cards.
For example, in the case of a debit card distributed to students by a college, the stated primary purpose of the card might be to promote education. In making this argument, the college (or the insured depository institution) might rely upon the fact that the card will serve as the cardholder’s student identification card and vehicle for access to student loan funds. Other factors such as the reloadability of the card and the permanency of the account, however, might indicate that the primary purpose of the card is to provide access to the account at the insured depository institution. This conclusion would be confirmed by the payment of fees or commissions to the college by the insured depository institution as compensation for distributing or marketing the cards. Under these facts, the primary purpose exception would be inapplicable. Therefore, the college would be a deposit broker, and the associated funds would be brokered deposits.