Untitled Texas Attorney General Opinion ( 1978 )

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