DAN MORALES

ATTORNEY

**GENERAL** 

## QMfice of tfp SZlttornep QBeneral &date of PCexae

Ms. Catherine A. Ghigliui Commissioner Texas Department ofBanking 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 ofthe 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 theMs. 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 ofthe purchase is automatically deducted from the account. Because the purchase may not be made with the card ifthe 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 “‘vendstripe” 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. 82(a). The term “sell” means “to sell, to issue, or to deliver a check.” 

### Id. 52(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 anyjudicial 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”) stripewhich is eocodedwith its value. Everytime a patchaseis made,the amountof the purchase isdeducted

frommecard’s

valueuntilthevalueofthecard isoxhaosted.
We disagree with the contention of the Unive-rsity of Texas that vend stripe cards are iodistioguishablefkomthetypeofdebitcardyooaskabcM. Aveadshipecardislikecashinthatits valueis inherentaodno reknd is available ifit is lostorstoke Nomosey is heldon depositwiththe ollivmity.

p. 1741Ms. 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 ofthe University of Texas is the “‘headof a department of the State govemment” within the meaning of former 

### article2276,V.T.C.S.); 

### Allis-Chal~ersMfg. Co. 

### v. CurtisElec. 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. 52(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 LAWDICTIONARY

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 awritten 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 31. The term

“‘bank” now by reason of the development and expansion of the 

### bankingbusiness 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 CommercialNai’l Bank v. Firti Not’1Bank, 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 33, 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. CreditAss’n, 264 S.W. 2d at 97 (While

. .the lending of money is one ofthe principal functions of a bank, nevertheless there are many agencies authorized by both state and federal governments to lend money, which are not banks 

### norconsidered 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 inbanking.

p. 1743Ms. CatherineA 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 

### automatedteller 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. ContinentalIllinoisNat’1Bank &iTru~lCo., 536F.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 aprivate 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) ofthe 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&nntBankersAss% ofAmerica v. Smith, 534F.2d 921, 942 (D.C. Cir. 1976).’ Thus, although a cash withdrawal 

### f?oman 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), statesin peltimntpart: Toddaminewhstw~~payinga”chedt”uodaacction3qf)this

amt mustbdaneethetechnicalcommend de&&ionofa “chcd? againstthe mahodof~toryin~~on~~bythcSupnme~.... The (vC!Cj de&m a ‘Wkeck”

asa“negotiable

instromnt”(i.e.,a “drafty) “drawn on abankandpayableondemand.” Admittedly,itwouldkdifiiculttofitunderthe UCC detinition, or ‘he stamhd dictionarydetinition,of “check”anything iavolvodinauIolmwwd [ATIb4l withdrewaluaomction. Fotmnakly, such semautid -havebxame UllllcapaTy since the [Sopmme] chut iashudedthattbc”dcfinitionof’branch’inrcaion360,mustnotbegivma mstrictive

meaningwhieh(would)fiutmte theconmonal intent.”
Id. at 942 qoomote 0mittcd).

p. 1744Ms. 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 aprivate 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 51.002 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. 551.002(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

5Wehsve notbeenprovided witha copyof SouthemMethodist Univusity’s coqorate charter snddonotccmmeatonit
%ction 51.002appliestoeachinstitution ofhighereducation,

asthattern isdefinedbysection 61.003 of the Edwation code., See Educ. Code p51.001. The Univmity of Texas, Texas A&M University,Texas Tech University,and Stephem F. Austin StateUniversityarc includedwithin the meaning cdthis term. Undersection 61.003, “institutionof higher education”means “any public tcchoicalimtitute,publicjuniorwkgc, pubIicseniorcollegeor **univasity,tWdidOOrdeatsllUli~OI** otheragencyofhi* educationas ddined in this se&m.” Id. 861.003(8). Theterm-publicsenior collegeoruniversity”

includestlx Univcdy ofTexascampuses,TexasA&MUniversity,TexasTech Univasity,andStephen

F.AustinState

University.Id. 5 61.003(3), (4).

p. 1745Ms. 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 51.002(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 ofregents’ general authority 

### togoverntheuniversities.

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 ofregents to impliedly authorize a state university do to so.

7SMoo (a)ofsccticn54.503de-tine6 thetam studont

scrvh toinch& “anyotherstudent activitiessod setvie specifically authorized

andsppmwdly thegcvemingboardoftk ia&uthm of highercdlKation.”

p. 1746Ms. 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 ofregents 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

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