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, 5 16, 

,~ 

.; 

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 mighty be 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. If not, 

the transaction ends and the cutomer is told why. If he does, the currency 

is dispensed, and the information is transmitted to the customer’s bank. 

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

The store would own, install and maintain the terminal. It would 

furnish the monies used and assume the risk of any loss that might occur. 

The proponents have suggested that this differs little from the 

traditional check cashing function of a retail store where it orally checks 

on the customer’s account, etc., by telephone with the banking institution. 

Section 16 of Article 16 of 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 it will 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 of its 

own customers through the use of a 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. 1293 
The Honorable Robert E. Stewart, page 3 (H-277) 

tion of the 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. 

In Brenham Production Credit~Association v. Zeiss, 264 S. W. 2d 

95 (Tex. 1953). the question was whether .the Association was subject to 

taxation as a banking corporation. The court, in holding.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, 0 3, ‘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. 7 Am. Jur., Banks, 0 2. 

“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., ,79 F. 2d 

77: ‘Strictly~ speaking the term bank implies a place 

~for the ~deposit ~of money,, as that is the most’~obvious 

;: ‘~purpose of su&an institution.’ 

“In Warren v. Shook, 91 U.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 of the 

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. 1294 
The 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 

12 U.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 on a 

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, 5 16, 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. 1295 
The Honorable Robert E. Stewart, page 5 (H-277) 

DAVID M. KENDALL, Chairman 

Opinion Committee 

p. 1296