Can a North Carolina state university issue students a campus debit card for buying books and meals, and can it open that same debit system up to private off-campus businesses?

Plain-English summary

East Carolina University proposed a campus debit card. A student would deposit money with the university business office; the cashier would post it to an account in the student's name; the student would then use a debit card to buy books, equipment, food, and laundry services from on-campus university enterprises. No fees, no cash advances, no overdrafts. Purchases came out of the prepaid balance. The university did not charge interest, did not extend credit, and did not pool the funds for investment.

Private off-campus merchants who sold to ECU students complained. Students with the card were more likely to spend on campus than write off-campus checks. The merchants wanted in: let them accept the ECU card, settle through the university, and pay ECU a small percentage on each sale.

Senior Deputy Attorney General Ann Reed and Assistant Attorney General L. McNeil Chestnut answered both questions through state banking law. North Carolina defines a "bank" in N.C.G.S. § 53-1(1) as any non-S&L, non-industrial-bank, non-credit-union corporation "receiving, soliciting or accepting money or its equivalent on deposit as a business." Federal law in 12 U.S.C. § 24 (Seventh) treats "receiving deposits" as a core banking activity. The closed-loop card did not cross that line. The student kept title to the funds, kept the risk of loss (absent university negligence), and could spend only on a narrow set of university-provided goods and services. That is a bailment for a special-purpose prepayment, not a bank deposit, and ECU was not acting "as a business" in receiving the money.

The Umstead Act objection was easier still. N.C.G.S. § 66-58(a) prohibits state agencies from competing with private enterprise in the sale of goods. But § 66-58(b)(8) carves out the Greater University of NC's existing utilities and the sale of "articles produced incident to the operation of instructional departments, articles incident to educational research, articles of merchandise incident to classroom work, meals, books," and similar items. The categories described exactly what students bought with the card: books, equipment, food, laundry. The exception fit.

The second question failed for the same banking-law reason that the first succeeded. If ECU let private merchants charge against the same accounts, the university would be the clearinghouse. Merchants would present charges, ECU would debit the student account, ECU would credit one of its own accounts, ECU would pay the merchant. That movement of funds is the hallmark of a financial intermediary. At that point ECU would be "accepting deposits as a business," which under Chapter 53 (banks), Chapter 54 (credit unions), Chapter 54B (S&Ls), Chapter 54C (savings banks), and the equivalent federal authorities is reserved to chartered depository institutions. Without a charter, ECU could not run that program.

The opinion also flagged the Article I, § 32 "exclusive emoluments" objection in passing. The Senior Deputy Attorney General noted that the constitutional provision would speak only to who could access the program if access were lawful in the first place, not to whether the program itself complied with banking law. Banking law was the dispositive issue.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Campus card programs evolved dramatically since 1993. Many state universities now partner with chartered banks or use stored-value-card frameworks under federal rules adopted long after this opinion. The Dodd-Frank Act's prepaid-card rules and the Department of Education's "cash management" regulations (34 C.F.R. § 668.164) now govern campus-card programs that involve federal student aid disbursement. Any modern review of a campus card should start with current federal banking and student-aid law, not this 1993 framework.

Common questions

Q: What made the on-campus card a "bailment" instead of a "deposit"?
A: The opinion focused on three features: the student kept title to the funds, the student bore the risk of loss (absent university negligence), and the funds could only be spent on a narrow set of university-provided goods and services. A bank deposit, by contrast, transfers title to the bank, creates a debtor/creditor relationship, and lets the depositor withdraw cash at will. ECU's card had none of those features.

Q: Why was the Umstead Act not a problem?
A: Because § 66-58(b)(8) explicitly carves out the Greater University of North Carolina's sale of utilities, instructional-incident articles, classroom-incident merchandise, meals, and books. The card was used for those very categories. The opinion noted it found "no case law or other authority to limit or otherwise narrow the scope of that exception."

Q: What changes if private merchants are allowed in?
A: The closed-loop becomes an open-loop. ECU starts moving money between students' accounts, the university's accounts, and merchants' accounts in exchange for goods and services that ECU did not produce. That intermediary role is precisely what state and federal banking law reserves to chartered depository institutions. The opinion called this a "very substantial argument" that ECU would be engaged in banking, which it could not lawfully do.

Q: Could ECU have solved this by partnering with a chartered bank?
A: The opinion did not reach that question directly, but its logic invites it. If a chartered bank holds the deposits and runs the settlement, the bank is doing the banking, and ECU is just providing a marketing channel and a campus-issued card. That model is in fact how most modern campus card systems work.

Q: Does the exclusive emoluments clause add anything?
A: The opinion said no, not as a primary objection. Art. I, § 32 might bear on which private merchants could be admitted if the program were lawful, but it did not save the open-loop program from the banking-law objection. The constitutional analysis was secondary at best.

Q: What kinds of "goods and services" were on the closed-loop card?
A: Books, equipment, food, and laundry services from university-operated enterprises. The opinion treated these as instructional-incident or campus-life articles within the § 66-58(b)(8) exception.

Background and statutory framework

North Carolina has long restricted who may run a bank. Chapter 53 governs state-chartered banks. Chapter 54 governs credit unions. Chapter 54B governs savings and loan associations. Chapter 54C governs savings banks. National banks come under federal charter in 12 U.S.C. § 21 and following. Across the entire scheme, "accepting deposits as a business" is the act that defines the regulated activity, and unauthorized deposit-taking is unlawful regardless of how the institution markets itself.

The Umstead Act in N.C.G.S. § 66-58 reflects a separate policy: keeping the state out of private commerce. The statute imposes a default prohibition in subsection (a) and then carves out subsection (b) categories where the legislature judged competition acceptable. The university carve-out in (b)(8) is broad on its face: instructional articles, research articles, classroom-incident merchandise, meals, and books.

The opinion's careful split between the two questions tracked the two statutory regimes. The closed-loop card passed both: (i) it was not deposit-taking under § 53-1(1) because the funds were earmarked for university-internal purchases, and (ii) the underlying purchases fit § 66-58(b)(8). The open-loop card flunked the first regime no matter how the second came out, because moving funds between students and unaffiliated merchants is deposit-taking and banking.

The factual sketch of "deposit" came from United States v. Jenkins, 943 F.2d 167 (2d Cir. 1991), which the opinion cited for the common-law understanding that a "deposit" is a sum of money placed in the custody of a bank, to be withdrawn at the will of the depositor. The opinion supplemented Jenkins with the standard banking treatise (5A Michie on Banks and Banking).

Citations

• N.C. Gen. Stat. § 53-1(1) (definition of "bank")
• N.C. Gen. Stat. § 66-58 (Umstead Act)
• N.C. Gen. Stat. § 66-58(a) (general prohibition on state competition with private enterprise)
• N.C. Gen. Stat. § 66-58(b)(8) (Greater University of NC instructional-articles exception)
• Chapter 53 of the General Statutes (state-chartered banks)
• Chapter 54 of the General Statutes (credit unions)
• Chapter 54B of the General Statutes (savings and loan associations)
• Chapter 54C of the General Statutes (savings banks)
• 12 U.S.C. § 24 (Seventh) (federal banking business)
• N.C. Const. art. I, § 32 (exclusive emoluments clause)
• United States v. Jenkins, 943 F.2d 167 (2d Cir. 1991)

Source

• Landing page: https://ncdoj.gov/opinions/authority-of-east-carolina-university-to-offer-a-debit-card-to-student-body/

Original opinion text

• (1)
• May East Carolina University lawfully offer its student body a debit card through which to purchase goods and services provided by University enterprises?
• (2)
• May East Carolina University lawfully permit private businesses access to the debit card to purchase goods or services offered by those businesses?

CONCLUSIONS

• (1)
• Yes.
• (2)
• No.

FACTS

Based on your correspondence with Special Deputy Attorney General Henry T. Rosser of August 2 (and the supplemental material provided on August 25 and again September 3, 1993), we understand the facts of this matter to be as follows. An East Carolina University student may deposit money with the University business office. This money will be placed in an account in the student's name by the University cashier. The student is then issued a debit card which, among other things, may be used to purchase certain goods and services from University enterprises operated on the University campus, including purchases of books, equipment, food, and laundry services. Such goods and services can be purchased only up to the amount on hand in the student's account, however, and the student cannot use the card to obtain credit loans or cash advances from the University or the University enterprises. The University charges no fee for issuance or use of the card by the student.

A private business or businesses, which also sell goods to University students, view the issuance of the debit card as unfair competition, since students who have these cards are more likely to use them for purchases within the University environment than to write checks or make cash purchases off campus. Such businesses seek access to the University's debit card system and would be willing to pay the University a predetermined percentage of any sale generated through the card.

DISCUSSION

The question of whether the University may lawfully conduct its debit card program is dependent upon whether or not acceptance of the underlying deposit would violate North Carolina or Federal Banking Law. Attention must, therefore, focus on the purpose and character of the deposit and the University's relationship to the student with regard to the same.

N.C. Gen. Stat. § 53-1(1) defines a bank as ". . . any corporation, other than savings and loan associations, savings banks, industrial banks, and credit unions, receiving, soliciting or accepting money or its equivalent on deposit as a business." (Emphasis added.) Equivalent federal authority defines a banking business to include "receiving deposits." See, 12 U.S.C. 24 (Seventh) (1990). Although the term deposit has not been expressly defined by statute nor construed by case law in North Carolina, it is commonly understood to mean a sum of money placed in the custody of a bank, to be withdrawn at the will of the depositor. See, United States v. Jenkins, 943 F.2d 167 (2nd Cir. 1991). See also, 5A Michie on Banks and Banking, Ch. 9, § 3 at 23 (1983).

It is well established that deposit relationships are, as a general rule, governed by the agreement under which they are created. The intentions of the parties may be determined from the facts and circumstances surrounding the transaction. See, Michie, supra, Ch. 9, § 1, at p. 17 (1983). It is also well established that ordinarily the relationship between a bank and its depositor is that of debtor and creditor. See, Michie, supra, Ch. 9, § 3, at p. 23, n. 3 (Supp. 1993). Your facts indicate that a deposit received from a student is placed in an account in that student's name by the University cashier. The student is then given a debit card through which the student may only purchase certain goods and services provided through University enterprises. Purchases made by the student are debited from the student's account and credited to the appropriate University account. The student may not receive cash nor obtain credit with the debit card. In essence, the mechanics of the debit card's transaction are completely internal within the University. Under these circumstances, we do not find that the University is accepting deposits "as a business" nor is there created the traditional relationship of debtor/creditor. Receipt of student deposits by the University amounts to no more than a prepayment of goods and services available within the University environment. Given the special or limited purpose of the underlying deposit, there is created, at most, the relationship of bailee/bailor as between the University and student. Unlike a bank deposit, the student retains title to the funds and the risk of loss remains with the student absent some negligence on the part of the University.

As to the allegations that the University is unlawfully engaged in unfair competition with private business, that issue appears to be very clearly addressed by the Umstead Act, Chapter 66, Article 11 of the North Carolina General Statutes. N.C. Gen. Stat. § 66-58. As you have recognized in your correspondence with this office, N.C. Gen. Stat. § 66-58(a) prohibits government from competing with private enterprise in the sale of goods and merchandise. N.C. Gen. Stat. § 6658(b)(8) provides, however, that subsection (a) does not apply to "[t]he Greater University of North Carolina with regard to its utilities and other services now operated by it nor to the sale of articles produced incident to the operation of instructional departments, articles incident to educational research, articles of merchandise incident to classroom work, (or) meals, (or) books. . . ." We have found no case law or other authority to limit or otherwise narrow the scope of that exception. Again, the facts indicated that the use of the University debit card by the student body is for the purchase of certain goods and services from University operated enterprises, including the purchase of books, equipment, food and laundry services.

We, therefore, conclude that so long as East Carolina University operates its debit program in the manner described, it does not violate the State or Federal Banking Law nor the Umstead Act.

Lastly, you raised the question of whether or not the University may lawfully allow private business access to the debit card program through which the students may purchase goods and services offered by those businesses. It has been suggested that Article 1, § 32 of the North Carolina Constitution would prohibit extension of the debit cards to private businesses. That section of the State Constitution provides that "[n]o person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services." We do not find that provision of North Carolina law depositive of this issue. In our view, it would only address the question of who may be entitled to access to the debit card if the same may be lawfully extended to private business. The ultimate question with regard to the second issue is whether the University may allow private business access to the debit card without violating banking law.

As we concluded on the first issue, by restricting the use to which a student may put the debit card, the underlying deposits were found to have been established for a limited or special purpose. They did not, therefore, constitute a bank deposit as that term is customarily defined, nor under those circumstances was the University seen as accepting deposits as a business.

If, however, the University accepts deposits of funds which may be accessed by private enterprises, the University has very clearly placed itself in the role of a financial intermediary. A financial intermediary is generally defined as a financial institution such as a commercial bank or savings and loan association. See, BARRON'S DICTIONARY OF BANKING TERMS 250 (2d ed. 1993). Debit card purchases made at a private business must be presented to the University for payment. The University must then debit the student's account, credit one of its accounts and facilitate payment to the merchant. These circumstances present a very substantial argument that the University is accepting deposits as a business and is thereby engaged in banking which it may not lawfully do. Only depository financial institutions, chartered under Chapters 53, 54, 54B and 54C, or equivalent federal authority, may properly accept deposits as a business in North Carolina.

We therefore, conclude that East Carolina University may not lawfully expand its debit card program to private businesses.

We have conducted a diligent search of both the state and federal case law systems regarding the issues raised in this opinion and have not found any precise authority on point. We are confident however that this opinion is consistent with the prevailing principles of banking law.

Ann Reed Senior Deputy Attorney General

L. McNeil Chestnut Assistant Attorney General