                      The Attorney                 General             of Texas
                                            December         19,     1978

JOHN L. HILL
Attorney General


                   Honorable Hoberl E. Stewnrt                         Opinion No. H-1292
                   Commissioner
                   Depart men1 of Banking                              He:     Whether    financinl   instilu-
                   2601 North Lamar                                    lions     including     banks,      map
                   Austin, Texas 78705                                 parliripole    on a fee bnsis in a
                                                                       cnsh dispensing machine network
                                                                       opcrrited by a corpornle vendor
                                                                        without violating branch banking
                                                                       prohibitions.

                   Dear Commissioner    Stewart:

                          You have requested our opinion as lo whether financial          institutions,
                   induding banks, may participate      in a cash dispensing machine network on a
                   fee basis, without violating article 16, section 16 of the Texas Constitution,
                   which prohibits     branch banking,      and article  342-903,    V.T.C.S.,     which
                   implements the constitutional    provision. As this branch banking prohibition is
                   applicable    lo banks only, we wiJJ not here consider the effect             of the
                   participalion    of other  financial~ institutions,  such as savings and loan
                   associations and credit unions, Smce their ability        lo participate     in such
                   programs is derived from their respective statutes.

                         As we understand the nelwork, as described in a proposal submitted to
                   you, a corporate vendor desires lo conlracl with financial institutions such as
                   banks, savings and loan associations and credit unions, lo provide a cash
                   dispensing machine network     lo the customers of such institutions.         The
                   corpornle   vendor proposes lo own, maintnin and conlrol the network, lo
                   provide all money used and lo n%ume all risks of loss. The machines will he
                   located in retail stores, shopping centers cmd other convenient        locations.
                    Cuslomcrs will gain access to the machines through use of magnetically
                   encoded cards, including    major credit cards.     The sole function     of the
                   machines will be lo dispense cash. ‘I’he corporate vendor proposes 1,~ assess
                   both the customer and the financial institution R fee for us? of the network.

                           In Attorney   (7cnrr‘ll Opiuion Ii,-277 f1974), WC said lhal hnnk:; w?,ich
                    participated   in a cash dispensing machine network operated by relail slorf Y
                    did no1 thereby violate lhg! constitutional   prohibition against branch banking.
                    since llic stores provided lhc cash crud tissumed r4lJrisk of loss. rxcepl for lhe




                                                       I,.    5093
Honorable   Roberl   E. Stewnrt   -      Pmge 2   (II-1   292)




fee clement,    the relationship between the banks and the corporrte vendor in the
present instance is identical to the relationship between the banks and the retail
merchants in Opinion H-277.        It has been suggested that the payment of such fees
may give rise to an agency relationship between the bank and the corporate vendor,
thus converting      each cnsh dispensing machine into nn unlawful         branch bank;
however,    Texas courts have held that the mere oavment           of money does not
automatkzally     create    an agency relationship.
Concrete    Co., 221 S.W.2d 584, 592 (Teu. Civ. App. -
 Here the coroorate      vendor has no OwllerShip interest in the financial institutions
involved, eithkr direct or indirect, and its s&vices are open to all banks and other
qualified institutions.    On the facts you have presented to us, we believe it is clear
that the corporate      vendor would not be an agent of the bank, and we believe that
the participating    banks would not be engaged in branch banking.

      In Attorney General Opinion H-277, we were also Rsked to determine whether
a store which operated a cash dispensing machine WRS unlawfully           engaged in
banking.   Although you have not posed that question, in our opinion its resolution is
essential to this inquiry.

       The retail stores in Opinion H-277 were merely making use of sophisticated
eiectronic  equipment    to assist them in performing a traditional    function of many
retail establishments,   that of cashing checks for customers.     The substitution of a
computerized     mnchlne, connected by telephone lines to a customer’s bank, for a
merchant’s telephone call to the bank for the purpose of verifying a customer’s
account before cashing his check, wns not deemed a controlling distinction, nor do
we believe it to be in the present instance.      The only real difference     in the two
situations arises with regard to the primary activity        of the two entities which
dispense cash to their customers.         To the retail    merchant,  check cashing is
ordinarily  incidental   to his primary business activity.     To the corporate vendor
operating a cash dispensing machine, the dispensing of cash is not only its primary,
but its only business activity.

      In Brenham Production Credit
                                 --, Ass’n v. --._
                                                Zeiss, 264 S.W.2d 95 (Tex. 1953), the
Supreme Court held that e production        credit nssociation   was not a banking
corporation for purposes of artmle 7166, V.T.C.S., merely because it lent money to
customers.   The court observed:

                Historically   a bank served merely as n place for the
             safekeeping of the depositors’ money and even now thnt is a
             primary function of a bank. 9 C.J.S., Banks and Banking, 8
             3, page 31.        The term ‘hank’ now by reason of the
             development     and expansion of the bnnking business does not
             lend itself to an exact definition. 7 Am. Jur.. Banks, 8 2.

                In Kaliski v. Gossett,    Tex. Civ. App., 109 S.W.2d 340, 344.
              wr. ref., the following     is quotrd with approval from In re




                                             P.   5094
.


    Honorable   Robert   E. Stewart    -   Page 3    fR-12g2J




                Prudence Co., 2 Cir., 79 F.2d 77: ‘StricUy speaking the term
                bank implies n plsce for the deposit of money, as that is the
                 most obvious purpose of such en institution.’

                    In Warren    v. Shook, 91 U.S. 704, 23 L&d. 42L 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    ia the substance of the business of .a banker.’

                    While, of course, the lending of money Js one of the
                 principal functions of a bank, nevertheless there nre many
                 agencies authorized  by both state and federal governments
                 to lend money, which are not banks nor considered         8s
                 such. . . .

    264 S.W.2d at 97. Thus, the mere act of lending money does net, absent the other
    two primary banking functions -- cashing checks and receiving deposits - render an
    institution 8 bank. It would seem to follow that the merI: act of cashing checks,
    without the concomitant     sctivities of lending money and receiving deposits, is
    likewise insufficient  to permit charscterization   of a particular   institution as a
    “bank.” See also Great Plains Life lnsurence Co. v. First National Bank of Lubbock,
     316 S.W.mTex.        Civ. App. - Amarillo 1958, writ ref’d n.r.e.); Attorney General
    Opinions H-1039 (1977); M-849 (1971); Letter Advisory No. 96 (1975). Since the sole
    function of the machines at issue here is the dispensing of cash, we conclude that,
    under the facts you have furnished us, a corporate vendor opernting such a machine
     would not be engaged in banking in violetion of Texas Jaw.

                                           gUMMARY

                 On the basis of the fects presented, (I bank may participate
                 on n fee besis in a cash dispensing machine network operated
                 by a corporate    vendor without violating the constitutional
                 prohibition  against branch banking, and without the corpo-
                 rnle vendor’s thereby being deemed n bank.




                                                     Attorney   General LICTexas




                                                    p.   5095
    :
.       Honorable
                RobertR.Stewwl -   l'iq.4 (X-1292)




                                   p. 5096
