             THEA~TORNEYGENERAX~
                      OF TEXAS
                                                                               L’
                                                                            .\‘L
                         AUSTW.        T-6            78711           GcI



                                   April   10,   1974



The Honorable Robert E. Stewart                               Opinion No.    H-   277
Department of Banking
John H. Reagan State Office Bldg                          Re:       Whether use of cash
Austin, Texas 78701                                                 dispensing machine             (
                                                                   .is “banking” as used     ,~
                                                                    in Article  16, 5 16,     .;
Dear   Commissioner     Stewart:                                    Constitution of Texas

       You have asked our opinion as to whether a proposal for the use of
cash dispensing machines in retail stores would violate either Article 16,
$16, of the Texas Constitution or Article 342-903,  Vernon’s  Texas Civil
Statutes.  ;    I,

      As the plan has been described    to ybu by its proponents, it is.de-
signed to assist retail stores in cashing checks without all of the elaborate
precautionary   measures   now taken against “hot” checks.

       It ‘is proposeh’to   locate a dispensing  terminal in a participating
retail store,    consisting   of a card reader, a telephone hook-up,    a printer,
pre-packaged      currency and a mini-computer.

    ’ The customer    would”be issued’s,         card on ,applicationiby the store or
by a ‘p&i&t&g       bank,&,    an &sting         major credit card mighty be used.                 -
   ~!I.,, ,,,, I ,~    ”    ,.    ,),                   ,,, :

       ‘A~customer    needing   ca’sh would insert~his          card ~&to the ‘term&l   at
the store and would “key in” his persbnal’identifica’tion               ~number.  If pro-
perly identified, the terminal would ask’the customer                 to key in the amount
of money needed;

       The terminal would then communicate        with the appropriate    bank
over telephone lines to,discover    (1) if the customer    had a valid account
at the bank and (2) if he had sufficient fund’s to cover the request.      If not,
the transaction   ends and the cutomer is told why.       If he does, the currency
is dispensed,   and the information   is transmitted    to the customer’s   bank.




                                           p.’ 1292
       The Honorable      Robert    E.   Stewart,       page 2      (H-277)




                The store would own, install and maintain the terminal.  It would
      furnish     the monies used and assume the risk of any loss that might occur.

              The proponents have suggested that this differs little from the
      traditional check cashing function of a retail store where it orally checks
      on the customer’s   account, etc.,  by telephone with the banking institution.

             Section 16 of Article   16 of the           Texas Constitution provides that the
      Legislature     shall provide, by law,            for the establishment and regulation
      of banks.    It contains the provision            that “Such body corporate shall not be
      authorized    to engage in business at            more than one place which shall be
      designated in its charter. ”

            Article     342 -903,    V. T. C.S.,        .provides    in part:

                             “No State, national or private bank shall engage
                      in business in more than one place, maintain any
                      branch office,   or cash checks .or receive deposits
                      except in its own banking kauae..   . . .‘I

             Your request, it would seem,  presents two questions:    (1) Assuming
      the facts presented to be true, are participating  banks violating prohibi-
      tions against branch banking~and (2) are the retail stores unlawfully
      engaged in banking?

              we believe the answer to your first question must be in the negative.
      So long as’the net effect of the operation is that it is &retail     ,store cash-
      ing the ‘checks and taking the. risk of loss,   with’no more than an up-to-date,
      c~omputerised method of verification,     we do not feel that it will be held that
i     the participating   banks’are  engaged &forbidden      branch banking.    Compare
 I    Attorney General’s     Opinions M-915 (1971) with M-273     (1968). The former
.,’
      approved a plan under which machines,        located on the premises    of each
      participating   bank, would cash checks of the others as well as those of its
      own customers     through the use of a card.     On the other hand, M-273    refused
      to approve a scheme under which banks would maintain deposit boxes off
      their premises,    even if they were ostensibly    owned, maintained and operated
      by a third person,    on the theory that the courts would not allow circumven-




                                                   p.    1293
The Honorable   Robert   E. Stewart,    page 3      (H-277)




tion of the branch banking laws by employment          of a subterfuge   involving
so-called  independent contracts.

      We answer your second question that, in our opinion, a retail
store owning and operating the described equipment and doing no more
than cashing personal checks would not be held to be illegally engaged
in banking.

       In Brenham Production Credit~Association   v. Zeiss,   264 S. W. 2d
95 (Tex. 1953). the question was whether .the Association   was subject to
taxation as a banking corporation.  The court, in holding.that it was not,
said:
                                        _
                   “I-Iistorically a bank :served merely as a place
            for the safekeeping     of the depositors’   money and even
            now that is a primary function of a bank.        9 C. J. S.,
            Banks and Banking,       0 3, ‘page 31. The term “bank”
            now by reason of the development         and expansion of the
            banking business does not lend itself to an exact defini-
            tion.   7 Am. Jur.,    Banks,    0 2.

                    “In Kaliski v. Gossett.      Tax. Civ. App. , ,109 S. W.
             2d. 340, 344, wr. ref.,      the following is quoted with
             approval from In re Prudence Co,,          2 Cir., ,79 F. 2d
             77: ‘Strictly~ speaking the term bank implies a place
            ~for the ~deposit ~of money,, as that is the most’~obvious
     ;:    ‘~purpose of su&an      institution.’

                   “In Warren v. Shook, 91         U.S.   704, 23 L. Ed. 421,
            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          is the substance of the
            business of a banker.’

                   “While,  of course, the lending of money is one
            of the principal functions of a bank, nevertheless.there
            are many agencies authorized by both state and federal




                                       p.   1294
The Honorable   Robert   E.   Stewart,        page 4      (H-277)




            governments    to lend money, which are not banks
            nor considered    as such. . . .

                    “The activities  of this association    are,limited
            by law to making short-term        loans to farmers     for
            agricultural  purposes and only to those who pur-
            chased stock in the association.        To carry out such
            function it was authorized     to borrow from and redis-
            count paper with Federal intermediate          Credit Banks
            and could deal in that respect with no other bank or
            agency except with the approval of the Governor of
            the Farm Credit Administration.          Section 113lh, Title
            12 U.S. C.A.    It cannot deal in exchange or purchase
            notes and is not under the supervision        of the national
            or state banking authorities.     “~(264 S. W. 2d at 97-98).

And see Attorney   General    Opinion H-100           (1973).

                                         SUMMARY

                   Where a retail store owns electronic     equipment
           by which a customer    may cash a check drawn on a
           prticipating   bank, with the store furnishing the funds
           and assuming all risks,    the bank’s participation   is not
           violative of the branch banking prohibition contained in
           Article 16, 5 16, of the Constitution and Article    342-903,
           V.T.C.S.,    and the store is not illegally.engaged    in the
           banking business.

                                                            Very    truly yours,




                                                 u          Attorney    General    of Texas




                                         p.    1295
The Honorable   Robert   E.   Stewart,    page 5     (H-277)




DAVID M. KENDALL,         Chairman
Opinion Committee




                                         p.   1296
