U.S. Department 

of Transportation 

Office of the Secretary 

of Transportation 

David J. Valpredo 

President 

Shelby Financial Corporation 

5 Great Valley Parkway 

Suite 110 

Malvern, Pennsylvania 19335 

Dear Mr. Valpredo: 

GENERAL COUNSEL 

September 16, 2014 

1200 New Jersey Avenue, SE 

Washington, DC 20590 

This is in response to your petition for rulemaking dated March 13, 2013, in which you request 

that the Department of Transportation (Department) expand the definition of"bank"1 in its public 

charter regulations2 to include escrow agents. Since that time, representatives of Shelby 

Financial Corporation (Shelby) have had several discussions with my staff regarding this matter, 

including an in-person meeting on June 12, 20143

. While we understand the reasons for 

Shelby's request, we continue to have concerns. 

Your petition, if granted, would allow escrow agents to undertake certain functions currently 

performed by banks, such as permitting them to sign the public charter depository agreement and 

public charter prospectus. You state that this approach would increase the limited number of 

financial institutions actively involved in the charter industry, since it would permit an escrow 

agent to partner with FDIC insured banks for the sole purpose of holding the funds in an FDIC 

insured institution. Under this approach, the escrow agent, rather than the bank, would handle 

record keeping, reporting and compliance activities pursuant to the Department's public charter 

regulations. You assert that such an approach would lead to a higher level of service as escrow 

agents, like you, have greater information technology capabilities and escrow accounting and 

reporting expertise. After carefully reviewing your petition, we have decided to deny it because 

expanding the definition of "bank" to include escrow agents may reduce the protections afforded 

to charter participants. 

We are concerned that amending our rule to give charter operators the option of remitting charter 

1 The tenn "bank" is defmed in section 380.34 as "a bank insured by the Federal Deposit Insurance Corporation 

(FDIC)." 

2 See 14 CFR Part 380. 

A summary ofthe June 12,2014, meeting was placed in the public docket at OST-2013-0107. The other 

discussions involved matters that were purely procedural. 

1 
participants' funds to an escrow agent to deposit and manage will lessen the protections afforded 

passengers should an escrow agent's operations fail. You assert that if the Department allows 

escrow agents to function as banks in the management of charter funds, the charter industry 

would benefit because such an arrangement would safeguard passenger funds and increase the 

level of financial transparency for passengers, charter operators, air carriers and relevant 

regulatory bodies. You note that the funds will continue to be maintained at an FDIC insured 

bank. However, in your petition for rulemaking, information was not included to explain how 

charter participant funds would. be afforded an equivalent or heightened level of protection if 

surrendered to a non FDIC insured escrow agent, as opposed to an FDIC insured bank. In this 

instance, the escrow agent and not the FDIC insured bank will be signing the public charter 

depository agreement and public charter prospectus. The Department would have no jurisdiction 

over the FDIC insured bank where the funds would be maintained as it would not be a signatory 

to the public charter depository agreement or related forms required by the Department. Your 

position presupposes that the Department would have recourse against an escrow agent's partner 

banks should an escrow agent's operations fail. 4 Without more information on how your 

proposal is in the best interest of the public, we are unable to grant your request at this time. 

However, when we conduct a comprehensive review of the public charter regulations, we will 

include a reexamination of the appropriate responsibilities for banks and escrow agents. 

If you need further information or assistance, you may contact Lisa Swafford-Brooks, Chief of 

the Aviation Licensing Compliance Branch, or Blane W orkie, Acting Assistant General Counsel 

for Aviation Enforcement and Proceedings at 202-366-9342. 

Sincerely, 

-t~ ~. ~---~--- Kathryn B. Thomson 

4 Under 14 CFR 308.34, DOT has authority over an FDIC insured bank when it signs a public charter document, 

and the bank is held responsible for the activities of its agents. If there is a problem, DOT can take action against 

the bank. If the regulation is amended to allow the escrow agent to be the sole signatory on the docliments, DOT 

would no longer have jurisdiction over the bank where the consumer funds are held. 

2