Today, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) votes on a final rule to implement procedures regarding the Federal Deposit Insurance Act’s ban on false advertising by the misusing the FDIC name or logo or making false statements about deposit insurance coverage.1 I am voting in favor of the final rule to strengthen the FDIC’s ability to identify and investigate potential prohibition violations, take enforcement action against such violations, and protect the overall integrity of the federal regulatory framework. deposit insurance.
Along with our vote today, the Consumer Financial Protection Bureau (CFPB) is also issuing guidelines for consumer protection officials outlining how misrepresentations regarding deposit insurance, even those who don’t “know” may be in violation of consumer financial protection law.
Federal deposit insurance, administered by the FDIC, has inspired confidence in our nation’s banking system for nearly 90 years.2 Depositors have peace of mind that their insured funds are safe and secure, even if their bank were to face financial difficulties. Public confidence in Federal Deposit Insurance and the FDIC has promoted stability in the banking system by reducing the risk of destructive bank runs.3 FDIC insurance is a privilege, and insured institutions that repeatedly break the law or otherwise engage in unsafe and unsound practices may have their eligibility for FDIC insurance terminated by the Board.4
Some market participants may seek to illegally take advantage of the trust placed in FDIC-insured products and services by luring individuals and businesses through misleading advertisements and misrepresentations about federal deposit insurance. Those attracted may lose money unexpectedly when they discover that their assets are not federally insured during times of financial hardship. Honest banks and businesses that faithfully market FDIC-insured accounts are at a competitive disadvantage when their competitors use deceptive advertising and marketing. The spread of pernicious and illegal marketing can undermine confidence in the integrity of our nation’s deposit insurance framework.
In 2008, Congress amended the Federal Deposit Insurance Act to prohibit anyone from misleading advertising by misusing the FDIC name or logo or making false statements about the existence deposit insurance.5 The law gives the FDIC the authority to investigate and take administrative enforcement action against anyone who violates the ban. Although the FDIC enforced this ban, it never issued specific rules.
The settlement the FDIC Board is voting on today provides procedures for identifying and investigating such conduct as well as formally and informally enforcing the prohibition. The settlement also provides standards for assessing potential violations, establishes a point of contact to receive complaints about potential violations, and directs consumers to where they can obtain information or verification on insurance coverage applications. – deposits.6
Deposit insurance misrepresentation claims are particularly relevant today. FDIC staff have noted an increase in potential violations in recent years. We are particularly concerned about potential misconduct involving new technologies, including so-called stablecoins and other crypto-assets. While new technologies can bring significant benefits to households, workers and small businesses, they nevertheless pose risks to consumers who can be lured by misrepresentations or false advertisements about deposit insurance.
It is important to note that while today’s settlement expressly reiterates the authority of the FDIC under Section 18(a)(4) of the Federal Deposit Insurance Act, it does not prohibit any other action authorized by law or regulation by the FDIC or any other agency.7
The CFPB has a number of responsibilities to protect the market from consumer abuse and unfair competition in deposit accounts, including rules regarding institutions offering uninsured deposit accounts and disclosure to depositors of their accounts. .8
The CFPB supports the FDIC’s efforts to eliminate misrepresentation by issuing a consumer financial protection circular. The circular states that covered persons or service providers subject to the consumer financial protection law are likely violating the law’s prohibition against deception if they misuse the FDIC name or logo or engage false advertisements or make false statements to consumers about deposit insurance.9
The Consumer Financial Protection Circular notes that such conduct may violate the Consumer Financial Protection Act, whether knowingly or unknowingly (including misrepresentation of insured status). For example, the circular states that claims that financial products or services are “regulated” by the FDIC or “insured” or “eligible for” FDIC insurance are misleading if such claims expressly or implicitly state that the product or service is provided by the FDIC when this is in fact not the case.
Our federal deposit insurance framework protects the hard-earned money of individuals, families and small businesses. It also underpins the stability of the country’s banking system. Today’s actions by the CFPB and the FDIC clarify and enhance the powers of the agencies to ensure that the integrity of the federal deposit insurance framework is preserved and protected.
2. “A Brief History of Deposit Insurance in the United States.” Federal Deposit Insurance Corporation. September 1998. https://www.fdic.gov/bank/historical/brief/brhist.pdf.
3. Douglas W. Diamond and Philip H. Dybvig. “Bank runs, deposit insurance and liquidity.” Journal of Political Economy, Vol. 91, No. 3. June 1983. https://www.jstor.org/stable/1837095?seq=2.
4. 12 U.S.C. 1818(a).
6. For example, non-bank entities that place a customer’s deposits in an insured depository institution (IDI) must identify the IDIs in which the funds can be placed. The non-bank institution must have existing direct or indirect relationships with these IDIs. This will allow clients to verify claims regarding the insured status of their funds. The final rule allows nonbank entities that place deposits through a depository network to provide customers with a hyperlink to a current list of network IDIs.
7. Section 328.109 has been added to the Final Rule and states: “Nothing in this Subpart shall be construed to bar any action otherwise available, under the laws or regulations of the United States or any state, to any federal or state agency or person”.
8. See, for example, 12 USC 1831t.
9. “Consumer Financial Protection Circular 2022-02: Misleading Representations Involving the Name or Logo of the FDIC or Deposit Insurance.” Consumer Financial Protection Bureau. May 2022.