ft.com/alphaville

From the people that brought you GE Capital’s participation in the Temporary Liquidity Guarantee Program - FDIC is now insuring ‘Stored Value Cards’.

Exsqueeze me?

Yes, that would be Stored-Value-Cards (and other non-traditional access mechanisms). According to the definition provided by the NY Fed these are:

… one of the most dynamic and fastest growing products in the financial industry. Anyone who makes purchases with a merchant gift card, places phone calls with a prepaid telephone card, or buys goods or services with a prepaid debit card is using a stored value card.

In other words, gift voucher cards, pre-paid telephone cards and any other prepaid debit cards.

From FDIC’s release:

• The new General Counsel’s Opinion No. 8 addresses the issue of whether the funds underlying stored value cards and other nontraditional access mechanisms qualify as “deposits” as defined in the Federal Deposit Insurance Act.
• Under the new opinion, the funds will be “deposits” to the extent that the funds have been placed at an insured depository institution. Consequently, the funds will be subject to assessments. Also, the funds will be insured (up to the insurance limit).
• In applying the insurance limit to a pooled custodial account, the FDIC will recognize the holders of the stored value cards (or other access mechanisms) as the owners of the deposits if the FDIC’s standard requirements for “pass-through” insurance coverage have been satisfied. Otherwise, the card distributor or other named accountholder will be recognized as the owner.
• The treatment of the funds underlying stored value products does not differ from the treatment set forth in the FDIC’s proposed rule published in August of 2005 (see FIL-83-2005 at http://www.fdic.gov/news/news/financial/2005/fil8305.html).

Worth noting:

• Stored-value-cards will be insured to the full insurance limit of $250,000 - useful for gift cards issued by Saks Fifth Avenue and DeBeers.
• If un-registered the ‘holder’ of the card will be deemed eligible for insurance - like a new-type of bearer bond, which had fallen out of favour due its propensity for use in money laundering.

That said, consumers should be relieved. The spectre of losing holiday gifts to a retail bankruptcy certainly doesn’t incentivise Christmas shopping.

When Sharper Image filed for bankruptcy protection this year it apparently left an estimated $20m on unused gift cards, according to the Boston Globe.

So, good news for those holding cards issued by Circuit City, at least.