U.S. Department of Transportation Office of the Secretary of Transportation

David 

### J. Valpredo President ShelbyFinancial 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 whichyou request that the Department ofTransportation (Department) expand the definition of"bank" 1 in its public charterregulations2 to include escrow agents. Since that time, representatives ofShelby Financial Corporation (Shelby) have had several discussions with my staffregarding this matter, including an in-person meeting onJune 12, 20143

. While we understand the reasons for Shelby's request, we continue to have concerns.
Your petition, ifgranted, would allow escrow agents to undertake certain functions currently performed by banks, such as permitting them to signthe public charter depository agreement and public charter prospectus. You state that this approach wouldincrease the limitednumber of financial institutions actively involved inthe charter industry, since it would permit an escrow agent to partner with FDIC insured banks for the sole purpose ofholding the funds in an FDIC insured institution. Underthis approach, the escrow agent, rather than the bank, would handle record keeping, reporting and compliance activities pursuantto the Department's public charter regulations. You assert that such an approach would leadto a higher level ofservice as escrow agents, like you, have greater informationtechnology capabilities and escrow accounting and reporting expertise. After carefullyreviewing yourpetition, we have decided to deny it because expanding the definition of"bank" to include escrow agents mayreduce the protections afforded to charterparticipants.
We are concerned that amending our rule to give charter operators the option ofremitting charter

1 The tenn "bank" is defmed in section 380.34 as "abank insured by the Federal Deposit Insurance Corporation (FDIC)."

2 See 14 CFR Part 380.
A summary oftheJune 12,2014, meeting was placed in the public docket at OST-2013-0107. The other discussions involved matters that were purely procedural. 

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### participants' funds to an escrow agent to deposit and manage will lessen the protections afforded passengers should an escrow agent's operations fail. Youassert that ifthe Department allows escrow agents to function as banks in the management ofcharter funds, the charter industry would benefit because such an arrangement would safeguard passenger funds and increase the level offinancial 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 yourpetition for rulemaking, information was not included to explain how charterparticipant funds would.be afforded an equivalent or heightened level ofprotection 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 insuredbankwill be signing the public charter depository agreement and public charterprospectus. The Department would have nojurisdiction over the FDIC insured bank where the funds would be maintained as it would not be a signatory to the public charter depository agreement orrelatedforms 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 

### Withoutmore information on how your proposal is inthe best interest ofthe public, we are unableto grant your request at this time. However, when we conduct a comprehensive review ofthe public charterregulations, we will include a reexamination ofthe appropriate responsibilities for banks and escrow agents.
Ifyou need further information or assistance, you may contact Lisa Swafford-Brooks, Chiefof the Aviation Licensing Compliance Branch, or Blane Workie, Acting Assistant General Counsel for Aviation Enforcement and Proceedings at 202-366-9342.

Sincerely,

# -t~**~. ~---~---**  Kathryn B. Thomson

4 Under 14 CFR 308.34, DOThas authority over an FDIC insuredbank when it signs a public charter document, and the bank is held responsible for the activities ofits agents. Ifthere is a problem, DOT can take action against the bank. Ifthe regulation is amended to allow the escrow agent to bethe sole signatory on the docliments, DOT would no longerhavejurisdiction overthe bank where the consumer funds are held. 

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