October 4, 1993 Mr. Gregory L. Hassler Assistant University Attorney East Carolina University 210 Spilman Greenville NC 27858-4353
RE: Advisory Opinion – Authority of East Carolina University to Offer a Debit Card to its Student Body and to Permit Private Business Access to the Card Under N.C. Gen. Stats. §§ 53-1, 66-58, and N.C. Const., Art. I, §32
Dear Mr. Hassler:
This advisory opinion is given in response to your request to Special Deputy Attorney General Henry T. Rosser.
ISSUES
Your request raises the following issues:
- (1)
- May East Carolina University lawfully offer its student body a debit card through which to purchase goods and services provided by University enterprises?
- (2)
- May East Carolina University lawfully permit private businesses access to the debit card to purchase goods or services offered by those businesses?
CONCLUSIONS
- (1)
- Yes.
- (2)
- No.
FACTS
Based on your correspondence with Special Deputy Attorney General Henry T. Rosser of August 2 (and the supplemental material provided on August 25 and again September 3, 1993), we understand the facts of this matter to be as follows. An East Carolina University student may deposit money with the University business office. This money will be placed in an account in the student’s name by the University cashier. The student is then issued a debit card which, among other things, may be used to purchase certain goods and services from University enterprises operated on the University campus, including purchases of books, equipment, food, and laundry services. Such goods and services can be purchased only up to the amount on hand in the student’s account, however, and the student cannot use the card to obtain credit loans or cash advances from the University or the University enterprises. The University charges no fee for issuance or use of the card by the student.
A private business or businesses, which also sell goods to University students, view the issuance of the debit card as unfair competition, since students who have these cards are more likely to use them for purchases within the University environment than to write checks or make cash purchases off campus. Such businesses seek access to the University’s debit card system and would be willing to pay the University a predetermined percentage of any sale generated through the card.
DISCUSSION
The question of whether the University may lawfully conduct its debit card program is dependent upon whether or not acceptance of the underlying deposit would violate North Carolina or Federal Banking Law. Attention must, therefore, focus on the purpose and character of the deposit and the University’s relationship to the student with regard to the same.
N.C. Gen. Stat. § 53-1(1) defines a bank as ". . . any corporation, other than savings and loan associations, savings banks, industrial banks, and credit unions, receiving, soliciting or accepting money or its equivalent on deposit as a business." (Emphasis added.) Equivalent federal authority defines a banking business to include "receiving deposits." See, 12 U.S.C. 24 (Seventh) (1990). Although the term deposit has not been expressly defined by statute nor construed by case law in North Carolina, it is commonly understood to mean a sum of money placed in the custody of a bank, to be withdrawn at the will of the depositor. See, United States v. Jenkins, 943 F.2d 167 (2nd Cir. 1991). See also, 5A Michie on Banks and Banking, Ch. 9, § 3 at 23 (1983).
It is well established that deposit relationships are, as a general rule, governed by the agreement under which they are created. The intentions of the parties may be determined from the facts and circumstances surrounding the transaction. See, Michie, supra, Ch. 9, § 1, at p. 17 (1983). It is also well established that ordinarily the relationship between a bank and its depositor is that of debtor and creditor. See, Michie, supra, Ch. 9, § 3, at p. 23, n. 3 (Supp. 1993). Your facts indicate that a deposit received from a student is placed in an account in that student’s name by the University cashier. The student is then given a debit card through which the student may only purchase certain goods and services provided through University enterprises. Purchases made by the student are debited from the student’s account and credited to the appropriate University account. The student may not receive cash nor obtain credit with the debit card. In essence, the mechanics of the debit card’s transaction are completely internal within the University. Under these circumstances, we do not find that the University is accepting deposits "as a business" nor is there created the traditional relationship of debtor/creditor. Receipt of student deposits by the University amounts to no more than a prepayment of goods and services available within the University environment. Given the special or limited purpose of the underlying deposit, there is created, at most, the relationship of bailee/bailor as between the University and student. Unlike a bank deposit, the student retains title to the funds and the risk of loss remains with the student absent some negligence on the part of the University.
As to the allegations that the University is unlawfully engaged in unfair competition with private business, that issue appears to be very clearly addressed by the Umstead Act, Chapter 66, Article 11 of the North Carolina General Statutes. N.C. Gen. Stat. § 66-58. As you have recognized in your correspondence with this office, N.C. Gen. Stat. § 66-58(a) prohibits government from competing with private enterprise in the sale of goods and merchandise. N.C. Gen. Stat. § 6658(b)(8) provides, however, that subsection (a) does not apply to "[t]he Greater University of North Carolina with regard to its utilities and other services now operated by it nor to the sale of articles produced incident to the operation of instructional departments, articles incident to educational research, articles of merchandise incident to classroom work, (or) meals, (or) books. . . ." We have found no case law or other authority to limit or otherwise narrow the scope of that exception. Again, the facts indicated that the use of the University debit card by the student body is for the purchase of certain goods and services from University operated enterprises, including the purchase of books, equipment, food and laundry services.
We, therefore, conclude that so long as East Carolina University operates its debit program in the manner described, it does not violate the State or Federal Banking Law nor the Umstead Act.
Lastly, you raised the question of whether or not the University may lawfully allow private business access to the debit card program through which the students may purchase goods and services offered by those businesses. It has been suggested that Article 1, § 32 of the North Carolina Constitution would prohibit extension of the debit cards to private businesses. That section of the State Constitution provides that "[n]o person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services." We do not find that provision of North Carolina law depositive of this issue. In our view, it would only address the question of who may be entitled to access to the debit card if the same may be lawfully extended to private business. The ultimate question with regard to the second issue is whether the University may allow private business access to the debit card without violating banking law.
As we concluded on the first issue, by restricting the use to which a student may put the debit card, the underlying deposits were found to have been established for a limited or special purpose. They did not, therefore, constitute a bank deposit as that term is customarily defined, nor under those circumstances was the University seen as accepting deposits as a business.
If, however, the University accepts deposits of funds which may be accessed by private enterprises, the University has very clearly placed itself in the role of a financial intermediary. A financial intermediary is generally defined as a financial institution such as a commercial bank or savings and loan association. See, BARRON’S DICTIONARY OF BANKING TERMS 250 (2d ed. 1993). Debit card purchases made at a private business must be presented to the University for payment. The University must then debit the student’s account, credit one of its accounts and facilitate payment to the merchant. These circumstances present a very substantial argument that the University is accepting deposits as a business and is thereby engaged in banking which it may not lawfully do. Only depository financial institutions, chartered under Chapters 53, 54, 54B and 54C, or equivalent federal authority, may properly accept deposits as a business in North Carolina.
We therefore, conclude that East Carolina University may not lawfully expand its debit card program to private businesses.
We have conducted a diligent search of both the state and federal case law systems regarding the issues raised in this opinion and have not found any precise authority on point. We are confident however that this opinion is consistent with the prevailing principles of banking law.
Ann Reed Senior Deputy Attorney General
L. McNeil Chestnut Assistant Attorney General