                            QMfice of tfp SZlttornep QBeneral
                                         &date of PCexae
DAN MORALES                                 March 9,199s
 ATTORNEY
       GENERAL




       Ms. Catherine A. Ghigliui                      Opinion No. DM-329
       Commissioner
       Texas Department of Banking                    Re: Whether state and private university
       2601 North Lamar Boulevard                     debit card programs are subject to the Sale
       Austin, Texas 787054294                        of Checks Act, V.T.C.S. art. 4894 and
                                                      related questions (RQ-684)

       Dearco mmissioner Ghiglieri:

               On behalf of the 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 the
Ms. 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 of the purchase is automatically deducted from the account.
Because the purchase may not be made with the card if the 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 “‘vend stripe” 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. 8 2(a). The term “sell” means “to sell, to issue, or to
deliver a check.” Id. 5 2(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 any judicial 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”) stripe which is eocoded with its value. Every time a patchase is made, the amount of the
purchaseis deductedfrom me card’svalue until the value of the cardis oxhaosted.

         We disagree with the contention of the Unive-rsityof Texas that vend stripe cards are
iodistioguishablefkomthetypeofdebitcardyooaskabcM.             Aveadshipecardislikecashinthatits
value is inherent aod no reknd is availableif it is lost or stoke No mosey is held on deposit with the
ollivmity.




                                                p.   1741
Ms. 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 of the University
of Texas is the “‘head of a department of the State govemment” within the meaning of
former article 2276, V.T.C.S.); Allis-Chal~ers Mfg. Co. v. Curtis Elec. 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. 5 2(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’SLAW DICTIONARY719-20 (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 a written 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 3 1. The term
          “‘bank” now by reason of the development and expansion of the
          banking business 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
Commercial Nai’l Bank v. Firti Not’1 Bank, 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 3 3, 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. Credit Ass’n, 264
S.W. 2d at 97 (While . . the lending of money is one of the principal functions of a bank,
nevertheless there are many agencies authorized by both state and federal governments to
lend money, which are not banks nor considered 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 in banking.




                                          p.   1743
Ms. Catherine A 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 automated teller 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. Continental Illinois Nat’1 Bank &i Tru~l Co., 536 F.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 a private 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) of the 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&nnt Bankers Ass% of America v.
Smith, 534 F.2d 921, 942 (D.C. Cir. 1976).’ Thus, although a cash withdrawal f?om an
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), states in
peltimnt part:

                 Toddaminewhstw~~payinga”chedt”uodaacction3qf)this
            amt must bdanee the technicalcommend de&&ion of a “chcd? against the
            mahodof~toryin~~on~~bythcSupnme~....                                 The
            (vC!Cjde&m a ‘Wkeck”as a “negotiableinstromnt” (i.e., a “drafty)“drawnon
            abankandpayableondemand.” Admittedly,itwouldkdifiiculttofitunderthe
            UCC detinition, or ‘he stamhd dictionary detinition, of “check” anything
            iavolvodinauIolmwwd       [ATIb4lwithdrewal uaomction. Fotmnakly, such
            semautid -havebxame               UllllcapaTy since the [Sopmme] chut
            iashudedthattbc”dcfinitionof’branch’inrcaion360,mustnotbegivma
            mstrictivemeaningwhieh (would)fiutmte the conmonal intent.”
Id. at 942 qoomote 0mittcd).




                                             p.    1744
Ms. 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 a private 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 Non-
Profit 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 5 1.002 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. 5 51.002(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

        5We hsve not been providedwith a copy of Southem Methodist Univusity’s coqorate charter
snddonotccmmeatonit

         %ction 51.002 appliesto each institutionof higher education,as that tern is definedby section
61.003 of the Edwation code., See Educ. Code p 51.001. The Univmity of Texas, Texas A&M
University, Texas Tech University, and StephemF. Austin State University arc included within the
meaning cd this term. Under section 61.003, “institution of higher education” means “any public
tcchoical imtitute, public junior wkgc, pubIic senior college or univasity,tWdidOOrdeatsllUli~OI
other agency of hi*    educationas ddined in this se&m.” Id. 8 61.003(8). The term -public senior
college or university”includes tlx Univcdy of Texas campuses,Texas A&M University,Texas Tech
Univasity, and StephenF. Austin StateUniversity.Id. 5 61.003(3), (4).




                                                p.   1745
Ms. 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 5 1.002(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 of regents’ general authority to govern the universities.

         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 of regents to impliedly authorize a state university do to so.




         7SMoo       (a) of sccticn 54.503 de-tine6the tam studontscrvh to inch& “any other student
activities sod setvie specificallyauthorizedand sppmwd ly the gcveming board of tk ia&uthm of
higher cdlKation.”




                                             p.   1746
Ms. 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 of regents 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




                                          p.   1747
