# THEA~TORNEYGENERAX~ OF TEXAS L’ .\‘L AUSTW. T-6 78711 GcI

April 10, 1974
The Honorable Robert E. Stewart Department of Banking John H. Reagan State Office Bldg Austin, Texas 78701

Dear Commissioner Stewart: Opinion No. H- 277 Re: Whether use of cash dispensing machine ( .is “banking” as used in Article 16, 516, ,~ .; Constitution of Texas You have asked our opinion as to whether a proposal for the use of cash dispensing machines in retail stores would violate either Article 16, $16, of the Texas Constitution or Article 342-903, Vernon’s Texas Civil Statutes. ; I, As the plan has been described to ybu by its proponents, it is.designed to assist retail stores in cashing checks without all of the elaborate precautionary measures now taken against “hot” checks. It‘is proposeh’to locate a dispensing terminal in a participating retail store, consisting of a card reader, a telephone hook-up, a printer, pre-packaged currency and a mini-computer. ’ The customer would”be issued’s, card on,applicationiby the store or by a‘p&i&t&g bank,&, an &sting major credit card mightybe used. - ~!I.,,,,,, I ,~ ” ,. ,), ,,,:

‘A~customer needing ca’sh would insert~his card ~&to the‘term&l at the store and would “key in” his persbnal’identifica’tion ~number. If properly identified, the terminal would ask’the customer to key in the amount of money needed; The terminal would then communicate with the appropriate bank over telephone lines to,discover (1)if the customer had a valid account at the bank and (2) if he had sufficient fund’s to cover the request. Ifnot, the transaction ends and the cutomer is told why. Ifhe does, the currency is dispensed, and the information is transmitted to the customer’s bank.

p.’ 1292The Honorable Robert E. Stewart, page 2 (H-277)

The store would own, install and maintain the terminal. Itwould furnish the monies used and assume the risk ofany loss that might occur. The proponents have suggested that this differs little from the traditional check cashing function ofa retail store where it orally checks on the customer’s account, etc., by telephone with the banking institution. Section 

### 16 ofArticle 16of the Texas Constitution provides that the Legislature shall provide, by law, for the establishment and regulation of banks. It contains the provision that “Such body corporate shall not be authorized to engage in business at more than one place which shall be designated in its charter. ” Article 342 -903, V. T. C.S., .provides in part:

“No State, national or private bank shall engage in business in more than one place, maintain any branch office, or cash checks .or receive deposits except in its own banking **kauae..** . . .‘I Your request, it would seem, presents two questions: (1)Assuming the facts presented to be true, are participating banks violating prohibitions against branch banking~and (2) are the retail stores unlawfully engaged in banking?

**i** I

.,’ we believe the answer to your first question must be in the negative.

So long as’the net effect of the operation is that it is &retail ,store cashing the ‘checks and taking the.risk of loss, with’no more than an up-to-date, c~omputerised method of verification, we do not feel that itwill be held that the participating banks’are engaged &forbidden branch banking. Compare Attorney General’s Opinions M-915 (1971) with 

### M-273 (1968). The former approved a plan under which machines, located on the premises of each participating bank, would cash checks of the others as well as those ofits own customers through the use ofa card. On the other hand, M-273 refused to approve a scheme under which banks would maintain deposit boxes off their premises, even if they were ostensibly owned, maintained and operated by a third person, on the theory that the courts would not allow circumvenp. 1293The Honorable Robert E. Stewart, page 3 (H-277)

tion ofthe branch banking laws by employment of a subterfuge involving so-called independent contracts. We answer **your** second question that, in our opinion, a retail store owning and operating the described equipment and doing no more than cashing personal checks would not **be** held to be illegally engaged in banking. InBrenham Production Credit~Association v. Zeiss, 264 S.W. 2d 95 (Tex. 1953). the question was whether .theAssociation was subject to taxation as a banking corporation. The court, inholding.that it was not, said:

_ “I-Iistorically a bank :served merely as a place for the safekeeping of the depositors’ money and even now that is a primary function of a bank. 9 C.J.S., Banks and Banking, 03, ‘page 31. The term “bank” now by reason of the development and expansion of the banking business does not lend itself to an exact definition. 7Am. Jur., Banks, 02.

“In Kaliski v. Gossett. Tax. Civ. App. ,,109 S.W. 2d. 340, 344, wr. ref., the following is quoted with approval from In re Prudence Co,, 2 Cir., ,79F. 2d 77: ‘Strictly~ speaking the term bank implies a place ~forthe~deposit ~ofmoney,, as that is the most’~obvious ;: ‘~purpose of su&an institution.’

“In Warren v. Shook, 91U.S. 704, 23 L. Ed. 421, the **court** observes that ‘having a place of business where deposits are received and paid **out** on checks and where money is loaned upon security is the substance ofthe business of a banker.’ “While, of **course,** the lending of money is one of the principal functions of a bank, nevertheless.there are many agencies authorized by both state and federal

p. 1294The Honorable Robert E. Stewart, page 4 (H-277)

governments to lend money, which are not banks nor considered as such.
. . . “The activities of this association are,limited by law to making short-term loans to farmers for agricultural purposes and only to those who purchased stock in the association. To carry out such function it was authorized to borrow from and rediscount paper with Federal intermediate Credit Banks and could deal in that respect with no other bank or agency except with the approval of the Governor of the Farm Credit Administration. Section 113lh, Title 12U.S. C.A. It cannot deal in exchange or purchase notes and is not under the supervision of the national or state banking authorities. “~(264 S.W. 2d at 97-98). And see Attorney General Opinion H-100 (1973). SUMMARY Where a retail store owns electronic equipment by which a customer may cash a check drawn ona prticipating bank, with the store furnishing the funds and assuming all risks, the bank’s participation is not violative of the branch banking prohibition contained in Article 16, 516, of the Constitution and Article 342-903, V.T.C.S., and the store is not illegally.engaged in the banking business. Very truly yours, 

# u Attorney General of Texas

p. 1295The Honorable Robert E. Stewart, page 5 (H-277)

DAVID M. KENDALL, Chairman Opinion Committee

p. 1296