THEA~TORNEYGENERAX~
OF TEXAS
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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
Untitled Texas Attorney General Opinion
Combined Opinion