Source: https://www.fdic.gov/regulations/laws/rules/4000-2880.html
Timestamp: 2019-04-19 05:09:12+00:00

Document:
This memorandum responds to a deposit assessment protest submitted by *** of the ***.1 *** protests an audit report exception taken to its "pension pay service fund, account no. ***" pursuant to an FDIC assessment audit conducted in December 1986. Furthermore, *** has asked for a refund of what it asserts is an overassessment in the amount of $158,000.
This protest involves *** pension payment service. *** has a section in its trust department called the "Benefit Payment Services" which sends out official checks to pay pension trust account beneficiaries. This Benefit Payment Services section make check payments in two ways: scheduled check runs and unscheduled check runs. Unscheduled check payments are for lump-sum payments, new pension accounts or other changes from the usual payment schedule. *** protest does not involve the unscheduled check runs; rather, the protest involves the Benefit Payment Services' scheduled check runs.
The scheduled check runs are the monthly pension payments made by the Benefit Payment Services section. *** routinely prepares, issues and posts cashier's checks a few days in advance of their payment date. *** does this so that the payees receive their pension payments no later than the date the pension is due. This practice enhances *** competitiveness, and it allows the pensioners to promptly meet their financial obligations.
The problem with *** practice is that these preissued, postdated cashier's checks are posted to *** general ledger as of the date of issuance, but they are not actually funded until the payment date. Furthermore, *** honors these checks even if they are presented before their payment date. On the date of issuance, these pension checks are posted to *** "current outstanding checks, account no. *** ". This creates a credit in *** general ledger that *** offsets with a commensurate debit balance in the pension pay service fund, account no. ***. When the payment date on these pension checks arrives, *** sweeps money from the trust account of the ERISA customer into the customer's deposit account. This deposit is then debited so that the money can be posted to the current outstanding checks, account no. *** to cover the pension checks. Finally, the debit balance in the pension pay service fund, account no. *** is eliminated by the aforementioned "trust sweep", and the account consequently is brought to zero as of the payment date of the pension checks.
The FDIC's argument essentially is that these preissued, postdated cashier's checks are deposits, and they consequently are assessable. Your *** memorandum states that the *** considers official checks released by a bank for delivery to be issued and outstanding. Furthermore, your memorandum states that issued official checks meet the definition of "deposit". See 12 U.S.C. § 1823(1)(4). Therefore, you state that the *** exception was taken because deposits posted to the institution's general ledger are assessable.
*** takes the position that its preissued, postdated cashier's checks are not assessable deposits. Furthermore, *** states that its accounting practices merely provide a means for keeping track of these pension checks. *** backs these positions by arguing that the pension checks pose no deposit insurance risk. *** also argues that these pension checks do not meet the definition of "deposit" until their due date arrives. When the due date does arrive, *** argues that its deposit base is then properly reflected in the current outstanding checks, account no. ***. Finally, *** argues that the pension pay service fund, account no. *** has no significance for assessment purposes because a cash management relationship exists between this account and the current outstanding checks, account no. ***.
*** assessment audit exception raises two questions. First, do preissued, postdated cashier's checks meet the definition of "deposit"? Second, is *** pension pay service fund, account no. *** an assessable deposit account?
*** preissued, postdated cashier's checks do not meet the definition of "deposit" until their due date. Furthermore, *** pension pay service fund, account no. *** is not a deposit account. Therefore, the exception to *** deposit assessment is incorrect.
The assessment base of a bank is "equal to the bank's liability for deposits . . ." 12 U.S.C. § 1817(b)(4)(A). As applied to *** protest, the first step in this analysis is to determine whether or not preissued, postdated cashier's checks meet the definition of "deposit". And if these drafts are deposits, the next step in this analysis will be to determine whether or not preissued, postdated cashier's checks are bank liabilities. Therefore, in order to be included in the assessment base, each of these preissued, postdated cashier's checks must be: 1) a "deposit", (2) for which *** is liable.
Preissued, postdated cashier's checks do not meet the definition of "deposit" until their due date. Section 3(1) of the Federal Deposit Insurance Act ("FDI ACT") provides several definitions of the term "deposit", but the only definition relevant to cashier's checks is found at subsection 3(1)(4). See 12 U.S.C. § 1813(1)(4). This provision defines "deposit" to mean "outstanding draft . . ., cashier's check, money order, or other officer's check issued in the usual course of business for any purpose . . ." Id. A preissued, postdated cashier's check is not any one of these four instruments.
Preissued, postdated cashier's checks are not cashier's checks or issued officer's checks until the date they become payable. Indeed, until the due date, a preissued, postdated cashier's check is not even a "check" as defined by the Uniform Commercial Code. See U.C.C. § 3-104(2)(b). This is because preissued, postdated cashier's checks are not "payable on demand''. See U.C.C. § 3-108. See also Allied Color Corp. v. Manufacturers Hanover Trust, 484 F. Supp. 881-883 (S.D. N.Y. 1980) ("a postdated check is not, prior to date, a "check' as defined in [U.C.C.] § 3-104(2)(b), since it is not payable on demand"'). Therefore, until the due date, a preissued, postdated cashier's check is not a cashier's check or issued officer's check for purposes of what is a "deposit".
postdated cashier's checks are on notice that the instruments are not negotiable until the due date. On the reverse of each draft, *** printed the following statement: "This check must be personally endorsed by the payee in ink on or after the date shown on the face hereof in the payee's handwriting." (Emphasis supplied.) Therefore, whereas an "outstanding draft" constitutes an effective but unpaid obligation, a preissued, postdated cashier's check is not an effective obligation until the due date, and *** cashier's checks consequently are not outstanding drafts for purposes of what is a "deposit".
Finally, a preissued, postdated cashier's check is not a "money order". A money order does not need to be presented to its original place of purchase in order to be honored. See Dictionary of Banking & Financial Services 442 (2d ed. 1985). In contrast, a cashier's check, whether preissued and postdated or not, does require presentment to the drawee bank in order to be honored. See U.C.C. § 3-504. Furthermore, and unlike a preissued, postdated cashier's check, a money order is an effective obligation without restriction on the payment date. Therefore, a preissued, postdated cashier's check is not a "money order".
In summary, the only definition of "deposit" relevant to *** preissued, postdated cashier's checks is found at subsection 3 (1)(4) of the FDI Act, but this definition does not apply. Subsection 3(l)(4) of the FDI Act defines "deposit" to mean "outstanding draft . . ., cashier's check, money order, or other officer's check issued in the usual course of business . . ." 12 U.S.C. § 1813(1)(4). Because they are not payable on demand, postdated cashier's checks are not actually checks until the due date. As a consequence, *** postdated cashier's checks legally are not cashier's checks or other officer's checks. Furthermore, *** postdated cashier's checks are not outstanding drafts or money orders primarily because, unlike these latter two forms of negotiable instruments, postdated cashier's checks do not represent effective obligations until their due date arrives. Therefore, *** preissued, postdated cashier's checks do not meet the only relevant definition of "deposit" in the FDI Act, and *** pension pay service fund account no. *** consequently is not a deposit account.
Finally, since preissued, postdated cashier's checks are not deposits until their due date, *** pension pay service fund, account no ***, is not a deposit account. The existence of this account and *** premature posting of these pension checks confuses the assessment process, but substance should rule over form. And as a matter of substance, *** pension pay service fund, account no. ***, is not a deposit account.

References: § 1823
 § 1817
 § 1813
 § 3
 § 3
 v. 
 § 3
 § 3
 § 1813