DAN MORALES 

ATTORNEY GENERAL 

QMfice of tfp SZlttornep QBeneral 

&date of PCexae 

Ms. Catherine A. Ghigliui 

Commissioner 

Texas Department of Banking 

2601 North Lamar Boulevard 

Austin, Texas 787054294 

March 9,199s 

Opinion No. DM-329 

Re: Whether state and private university 

debit card programs are subject to the Sale 

of Checks Act, V.T.C.S. art. 4894 and 

related questions (RQ-684) 

Dearco mmissioner Ghiglieri: 

On behalf of the Texas Department of Banking (the “department”), you ash about 

stateandprivate univemity “debit card” programs. You generaUy describe such programs 

as fdlows: “[A] university accepts money fkom students (and sometimes from faculty and 

sta@and,intum,issuesacardtoeach...tobeusedfordrawingagainstthisaccountto 

obtain goods and services on campus.” You state that the department is aware of at least 

three state universities that have established a debit card program: Texas A&M 

University, Stephen F. Austin State University, and Texas Tech University. You also 

inform us that Southern Methodist University, a private tmiversity, has such a program. In 

addition, we have receivd a brief from the University of Texas stating that it has several 

debit card programs. 

Essentially, you ash three questions. Fiist, you ash whether the issuance of debit 

cards amounts to the sale of checks under the Sale of Checks Act, V.T.C.S. art. 489d. 

Second, you ask whether an entity which issues debit cards acts as a bank and is required 

to obtain a bank charter. Thud, you ash whether the foregoing entities are statutorily 

authorized to issue debit cards to students, faculty and statI We have received briefs 6om 

all of the above universities arguing that their respective debit card programs do not 

amount to the sale of checks or unauthorized banking and that the institutions are 

authorized to issue such cards. 

It is apparent from the briefs we have received that the universities’ debit card 

programs vary. As we read your request, we understand that you are only interested in 

those debit card programs with the following features: A student, faculty member or staff 

person deposits a certain amount in an account with the university, and receives a card (or 

perhaps encoded information on a preexisting identitication card) that identifies the 
Ms. Catherine A. Ghiglieri - Page 2 (DM-329) 

account. The cardholder presents the card when making a purchase from a university 

vendor or, in some cases, third-party vendors operating concessions on campus pursuant 

to a contract with the university. When a purchase is made, the cashier uses the card to 

identity the account and determine whether the account balance is sufficient. After the 

purchase is made, the amount of the purchase is automatically deducted from the account. 

Because the purchase may not be made with the card if the account balance is insufficient, 

it is impossible to overdraw the account. We limit our discussion to the foregoing type of 

debit card program. We do not address “‘vend stripe” cards’ or cards involving accounts 

with third parties. 

The Sale of Checks Act prohibits any “person” from engaging “in the business of 

selling checks, as a service or for a fee or other consideration, without having tkst 

obtained a license hereunder.” V.T.C.S. art. 489d, 3 3. The term “person” is de&d in 

section 2(a) of the act to mean “any individual, partnership, association, joint stock 

association, trust, or corporation, but does not include the United States Government or 

the government of this state.” Id. 8 2(a). The term “sell” means “to sell, to issue, or to 

deliver a check.” Id. 5 2(e). The term “check” means “any check, draft, money order, 

personal money order, or other instrument for the transmission or payment of money.” Id. 

§ m. 

We are unaware of any judicial opinions construing the act. We believe that it is 

unlikely that a court would conclude, however, that a debit card program like the one you 

describe runs afoul of the act. Fi, the act’s prohibitions apply solely to “persons” as 

detined in section 2(a) of the act. See id. $4 3, 16. The state universities do not appear 

even to fall within this defmition. A state university is not an individual, partnership, 

association, joint stock association, trust or corporation as required by section 2(a).2 

lApcrscapaysfcra%ndsuipe”cardwithaspecit?cvalw. Thecardumtainsawagmtic(or 

“wad”) stripe which is eocoded with its value. Every time a patchase is made, the amount of the 

purchase is deducted from me card’s value until the value of the card is oxhaosted. 

We disagree with the contention of the Unive-rsity of Texas that vend stripe cards are 

iodistioguishablefkomthetypeofdebitcardyooaskabcM. Aveadshipecardislikecashinthatits 

value is inherent aod no reknd is available if it is lost or stoke No mosey is held on deposit with the 

ollivmity. 

p. 1741 
Ms. Catherine A. Ghigheri - Page 3 (DM-329) 

Moreover, we believe that a court would conclude that a state university is part of “the 

government of this state” and therefore excluded from the meaning of the term “‘person” 

under tbe plain language of section 2(a). See Rainey Y. Mulone, 141 S.W.2d 713, 716 

(Tex. Civ. App.-Austin 1940, no writ) (holding that the board of regents of the University 

of Texas is the “‘head of a department of the State govemment” within the meaning of 

former article 2276, V.T.C.S.); Allis-Chal~ers Mfg. Co. v. Curtis Elec. Co., 259 S.W.2d 

918, 921 vex. Civ. App.-Austin 1953) (holding that the words “this State” as used in 

now-repealed article 5160, V.T.C.S., were intended to include Texas A&M and its 

governing board), rev’d in part on other grounds 264 S.W.2d 700 (Tar. 1954).1 

Accordingly, we believe that it is likely that a court would conclude that the state 

tmiversities are simply not subject to the act. Gf course, the same would not be true in the 

case of a private university. 

We also believe that it is likely that a court would conclude that the kind of debit 

card program at issue does not constitute the sale of checks. In de&ring the term “check” 

to mean “any check, drag, money order, personal money order, or other instrument for the 

transmission or payment of money,” see id. 5 2(c), the act appears to contemplate tbat a 

check is a written instrument. Checks, drafts, money orders, and personal money orders 

are written instruments, and the term “instrument” itself is wmmonly understood to refer 

to a written document. See BLACK’S LAW DICTIONARY 719-20 (5th ed 1979) (detining 

the term “instnmtent” as “[a] written document” and “[a]nything reduced to writing”). 

The debit card program you describe does not involve the sale of a written instrument. 

Furthermore, ahhougb the act does not define the term “check”, we believe tbat 

the legislature intended the term “check” to refer to negotiable instruments, as the term is 

defined in the Uniform Commercial Code (WCC”) and section 3.104(b)(2) of the Texas 

Business and Commerce Code. We base this conclusion on section 12 of the act which 

provides: 

Each licensee shah be liable for the payment of ah checks which 

he sells, in whatever form and whether directly or through an agent, 

as the maker or drawer thereof accordmg to the negotiable 

instrwent laws of this state; and a licensee who sells a check, 

whether directly or through an agent, upon which he is not 

designated as maker or drawer shall nevertheless have the same 

p. 1742 
MS. Catherine A. Ghiglieri - Page 4 (DM-329) 

liabilities with respect thereto as if he had signed the same as the 

drawer thereof 

Section 12, in referring so explicitly to the law of negotiable instruments, is strong 

evidence that the legislature intended the term “check” as defined by the act to be limited 

to negotiable instruments. See Bus. & Corn. Code 3 3.104(a) (detining the term 

“negotiable instnmtent” for purposes of Texas Uniform Commercial Code). The debit 

card program you describe does not involve the sale of negotiable instruments. 

You also suggest that universities which issue debit cards are engaged in the 

tmauthorized business of banking. We are not aware of a Texas statute which detines the 

term “bank” or “banking.” You suggest that accepting deposits is the primary indicia of a 

bank. It is clear from Texas case law, however, that no one feature detlnes a bank. 

Historically a bank merely served as a place for the safekeeping 

of the depositors’ money and even now that is the primary function 

of a bank. 9 C.J.S., Banks and Banking, 5 3, page 3 1. 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, $2. 

Brenham prod. Credit Ass’n v. Zeiss, 264 S.W.2d 95, 97 (Tex. 1953); see ako 

Commercial Nai’l Bank v. Firti Not’1 Bank, 80 S.W. 601, 603 (Tex. 1904) (discussing 

activities of banks under federal law); V.T.C.S. art. 342-302 (listing powers of a state 

bank). Furthermore, authority from other jurisdictions suggests that an entity is not 

necessarily a bank just because it engages in certain acts that are typical of banks; rather 

one must look at the activities of the entity as a whole. See, e.g., 9 C.J.S. Banks und 

Banking 5 1, at 30 (1938) (“Banking is the business of receiving deposits payable on 

demand, discounting commercial paper, making loans on collateral security, issuing notes 

payable on demand , , collecting notes or drafls, buying and selling biis of exchange, 

negotiating loans, and dealing in negotiable securities. Exercise of all these fmxtions is 

not necessary, nor does exercise of certain of them necessarily render a corporation a 

bank.“); 10 AM. JUR. 2d Banks 3 3, at 27 (1963) (“Carrying on a banking business does 

not mean the performance of a single discomtected banking business act[;] [i]t means 

conducting, prosecuting, and wntinuing business by performing progressively acts 

normally incident to the banking business”); see also Brenham Prod. Credit Ass’n, 264 

S.W. 2d at 97 (While . . the lending of money is one of the principal functions of a bank, 

nevertheless there are many agencies authorized by both state and federal governments to 

lend money, which are not banks nor considered as such”). We do not believe that a court 

would conclude that a university that offers a debit card program such as the one you 

describe among its many and various activities engages in banking. 

p. 1743 
Ms. Catherine A Ghiglieri - Page 5 (DM-329) 

You have submitted to this office an opinion issued by the Comptroller of Florida 

regarding whether the card program of a public university in that state constituted a 

banking activity. The cards in that program wuld be used to pay for goods and services 

and to make cash withdrawals from automated teller machines (“ATMs”) on and off 

campus operated by a private bank. Relying in part on a federal appeals court decision 

holding that the payment of a cash withdrawal from an ATM constitutes payment of a 

check, Illinais ex rel. Ligntnd v. Continental Illinois Nat’1 Bank &i Tru~l Co., 536 F.2d 

176 (7th Cu.), ceri. denied, 429 U.S. 871 (1976), the Comptroller of Florida concluded 

that the miversii paid checks by allowing cash withdrawals with its card at ATM 

operated by a private bank. 

We do not believe that this opinion supports your position that the kind of debit 

card program at issue here involves a sale of checks under the act or unauthorized 

banking. First, ZIInais ex rel. Ligmnd dealt with whether a cash withdrawal from an 

ATM wnstiMed “branch banking” within the meaning of the National Bank Act, 12 

U.S.C. 3 36(f). We do not read that case to hold that an ATM withdrawal, or the use of 

any other card necessBIjly constitutes payment of a check for purposes of section 

3-104(3) of the Uniform Commercial Code. Indeed, the primary case upon which Illinois 

ex rel. LignoUr relies clearly points out the difference between the Uniform Commercial 

Code’s narrow definition of a check and the expanke deli&ion of a branch bank in 

section 36(f) of the National Bank Act. See Ir&pen&nnt Bankers Ass% of America v. 

Smith, 534 F.2d 921, 942 (D.C. Cir. 1976).’ Thus, although a cash withdrawal f?om an 

ATM may constitute payment of a check for purposes of the National Bank Act, it does 

not necessarily constitute a check for purposes of the Uniform Commercial Code or the 

common commercial understanding of the term. Therefore, the Florida comptroller’s 

opinion does not convince us that the debit card programs at issue here involve the sale of 

4~ndep?nd.ent Bankers Ass’n of Amerka v. S&h, 534 F.2d 921 (DC. Cir. 1976), states in 

peltimnt part: 

Toddaminewhstw~~payinga”chedt”uodaacction3qf)this 

amt must bdanee the technical commend de&&ion of a “chcd? against the 

mahodof~toryin~~on~~bythcSupnme~.... The 

(vC!Cj de&m a ‘Wkeck” as a “negotiable instromnt” (i.e., a “drafty) “drawn on 

abankandpayableondemand.” Admittedly,itwouldkdifiiculttofitunderthe 

UCC detinition, or ‘he stamhd dictionary detinition, of “check” anything 

iavolvodinauIolmwwd [ATIb4l withdrewal uaomction. Fotmnakly, such 

semautid -havebxame UllllcapaTy since the [Sopmme] chut 

iashudedthattbc”dcfinitionof’branch’inrcaion360,mustnotbegivma 

mstrictive meaning whieh (would) fiutmte the conmonal intent.” 

Id. at 942 qoomote 0mittcd). 

p. 1744 
Ms. Catherine A. Ghiglieri - Page 6 (DM-329) 

“checks” as that term is defmed by the act. We also believe that the Florida opinion .is 

inapposite with respect to the question whether Texas universities that offer debit card 

programs engage in banking. The type of debit card program you ask about does not 

permit cardholders to make cash withdrawals from their accounts much less allow them to 

make cash withdrawals from ATMs operated by a private bank. 

This brings us to your final question, that is, whether a debit card program such as 

the one you describe exceeds the statutory authority of a state or private university. 

Private universities, such as Southern Methodist Universi~, are generally organized as 

nonprofit wrporations. Their powers are set forth in their corporate charters and the 

Texas Non-Profit Corporation Act, V.T.C.S. arts. 13961.01- 11.01. The Texas NonProfit Corporation Act detines the powers of nonprofit corporations expansively: “each 

corporation shall have power. [wlhether included in the foregoing or not, to have and 

exercise all powers necessary or appropriate to effect any or all of the purposes for which 

the corporation is organized.” V.T.C.S. art. 1396-2.02(15). For this reason, we believe 

that private universities are authorized to operate debit card programs, provided that the 

programs are wnsistent with the educational mission set forth in their corporate charters~ 

and do not violate the Sale of Checks Act or constitute unauthorized banking. 

The state universities contend that their debit card programs are authorized by 

section 5 1.002 of the Education Code which provides that the governing board of certain 

institutions of higher education, including the state universities at issue here,6 “may retain 

wntrol of [certain] sums of money collected at the institution, subject to Section 51.008 

of this code.” Educ. Code $51.002. Included in that list are “students’ voluntary 

deposits of money for safekeeping.” Id. 5 51.002(a)(S). Section 51.002, in essence, 

authorizes the institutions to hold such student monies locally rather than depositing them 

in the state treasury. We do not believe that this provision expressly authorizes debit card 

programs. At most, this language acknowledges the practice at many universities of 

holding student money for safekeeping. Furthermore, as you point out, this provision 

5We hsve not been provided with a copy of Southem Methodist Univusity’s coqorate charter 

snddonotccmmeatonit 

%ction 51.002 applies to each institution of higher education, as that tern is defined by section 

61.003 of the Edwation code., See Educ. Code p 51.001. The Univmity of Texas, Texas A&M 

University, Texas Tech University, and Stephem F. Austin State University arc included within the 

meaning cd this term. Under section 61.003, “institution of higher education” means “any public 

tcchoical imtitute, public junior wkgc, pubIic senior college or univasity,tWdidOOrdeatsllUli~OI 

other agency of hi* education as ddined in this se&m.” Id. 8 61.003(8). The term -public senior 

college or university” includes tlx Univcdy of Texas campuses, Texas A&M University, Texas Tech 

Univasity, and Stephen F. Austin State University. Id. 5 61.003(3), (4). 

p. 1745 
Ms. Catherine A Ghiglieri - Page 7 (DM-329) 

does not authorize public universities to retain the deposits of faculty and staff For these 

reasons, we do not believe that section 5 1.002(a)(S) alone is a su&ient legal basis for the 

debit card programs you describe. 

The University of Texas argues that its debit card programs are authorized by 

section 65.31 of the Education Code, which generally authorizes the board of regents to 

“govern, operate, support, and maintain” the University of Texas System, and its general 

power to offer benefits to its employees. There are similar provisions establishing the 

authority of the board of regents of Texas A&M University, see id. 3 85.21, Stephen F. 

Austin State University, Ee id $4 101.11, .41. and Texas Tech University, see id. 

5 109.21. Although these provisions do not expressly authorize the state universities to 

operate debii card programs, it is possible that a court would wnclude that such authority 

may be implied t?om the board of regents’ general authority to govern the universities. 

In past opinions, this office has concluded that state universities have broad 

authority to provide services and perform functions not expressly authorized by statute. 

See, e.g., Attorney &neral Gpiions H-513 (1975) (food woperative may be operated as 

student service or auxiliary enterprise of North Texas State University); WW-5 (1957) 

(Texas Tech authorized to operate educational television channel); Lena Advisory No. 6 

(1973) (university may validly determine that public interest research activities constitute 

student services). In this case, provisions which broadly authorize state universities to 

provide student services, see E&c. Code 5 54.503(b) (authorizing tbe governing board of 

an institution of higher education to charge and wllect fees to wver cost of broad range 

of student services),’ and which recognize the authority of state universities to establish 

auxiliary enterprises, activities that are not strictly educational but that support the 

educational mission of the university, see Tar. Const. art. VII, 8 17(f); Educ. Code 

$61.003(14), may provide similar implied authority for debit card programs. In sum, 

although we have found no statute which expressly authorizes a state university to operate 

a debit card program, we believe that it is likely that a wurt would probably wnstrue the 

broad powers of a board of regents to impliedly authorize a state university do to so. 

7SMoo (a) of sccticn 54.503 de-tine6 the tam studont scrvh to inch& “any other student 

activities sod setvie specifically authorized and sppmwd ly the gcveming board of tk ia&uthm of 

higher cdlKation.” 

p. 1746 
Ms. Catherine A. Ghiglieri - Page ,8 (DM-329) 

SUMMARY 

It is unlikely that a court would conclude that a university debit 

card program which does not involve the transfer of funds via written 

instruments is subject to the Sale of Checks Act, V.T.C.S. art. 489d. 

It is also unlikely that a wurt would conclude that a university that 

offers a debit card program among its many and various activities 

engages in banking. 

Private universities are authorized to operate debit card 

programs, provided that the programs are wnsistent with the 

educational mission set forth in their corporate chatters and do not 

violate the Sale of Checks Act or constitute unauthorized banking. 

Although we have found no statute which expressly authorizes a 

state university to operate a debit card program, we believe that it is 

likely that a court would probably construe the broad powers of a 

board of regents to impliedly authorize a state university do to so. 

DAN MORALES 

Attorney General of Texas 

JORGE VEGA 

Fii AAtant Attorney General 

SARAH J. SHIRLEY 

Chair, Opinion Committee 

Prepared by Mary R. Grouter 

Assistant Attorney General 

p. 1747