Today, the Federal Deposit Insurance Corporation (FDIC) Board of Directors is voting on a final rule to implement procedures regarding the Federal Deposit Insurance Act’s prohibition on false advertising through the misuse of the name or logo of the FDIC or making knowing misrepresentations 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 violations of the prohibition, to take enforcement actions against such violations, and to protect the overall integrity of the federal deposit insurance framework.
In conjunction with our vote today, the Consumer Financial Protection Bureau (CFPB) is also issuing guidance to consumer protection enforcers outlining how misrepresentations about deposit insurance, even those that are not “knowing,” may violate the Consumer Financial Protection Act.
Federal deposit insurance, administered by the FDIC, has instilled confidence in our nation’s banking system for almost 90 years.2 Depositors get the peace of mind that their insured funds are safe and secure, even if their bank should face financial trouble. The public’s trust of federal deposit insurance, and the FDIC, has promoted a stable banking system by reducing the chances of destructive bank runs.3 FDIC insurance is a privilege and insured institutions that repeatedly violate the law or otherwise engage in unsafe and unsound practices can have their eligibility for FDIC insurance terminated by the Board.4
Some market participants may seek to illegally profit off the trust conferred upon FDIC-insured products and services by enticing people and businesses through deceptive advertising and misrepresentations about federal deposit insurance. Lured individuals may unexpectedly lose money when they find that their assets are not federally insured in a time of financial distress. Honest banks and companies that truthfully market FDIC-insured accounts are competitively disadvantaged when competitors employ false 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 any person from engaging in false advertising by misusing the name or logo of the FDIC or from making knowing misrepresentations about the existence of deposit insurance.5 The statute provides the FDIC authority to investigate and take administrative enforcement actions against any person who violates the prohibition. While the FDIC has enforced this prohibition, it has never issued specific rules.
The regulation that the FDIC Board of Directors is voting on today provides procedures for identifying and investigating such conduct as well as for formally and informally enforcing the prohibition. The regulation also provides standards to evaluate potential violations, establishes a point-of-contact responsible for receiving complaints about potential violations, and directs consumers to where they can obtain information or verification about deposit insurance coverage claims.6
Misrepresentation claims about deposit insurance are particularly relevant today. FDIC staff has noted an uptick in potential violations in recent years. We are especially concerned about potential misconduct involving novel technologies, including so-called stablecoins and other crypto-assets. While new technologies may yield significant benefits for households, workers, and small businesses, they nonetheless pose risks to consumers who may be baited by misrepresentations or false advertisements about deposit insurance.
Importantly, while today’s regulation expressly reiterates the FDIC’s authority under Section 18(a)(4) of the Federal Deposit Insurance Act, it does not bar 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 marketplace from consumer abuses and unfair competition when it comes to deposit accounts, including rules regarding institutions offering uninsured deposit accounts and disclosures to depositors about their accounts.8
The CFPB is supporting the FDIC’s efforts to root out misrepresentation by issuing a Consumer Financial Protection Circular. The Circular indicates that covered persons or service providers subject to the Consumer Financial Protection Act likely violate the statute’s prohibition on deception if they misuse the name or logo of the FDIC or engage in false advertising or make misrepresentations to consumers about deposit insurance.9
The Consumer Financial Protection Circular notes that such conduct may violate the Consumer Financial Protection Act, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly. 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 deceptive if those claims expressly or implicitly indicate that the product or service is FDIC-insured when that is not in fact the case.
Our federal deposit insurance framework safeguards the hard-earned money of individuals, families, and small businesses. It also underpins the stability of the nation’s banking system. Today’s actions by the CFPB and FDIC clarify and improve the agencies’ authorities to ensure the integrity of the federal deposit insurance framework is preserved and protected.
1. Section 18(a)(4) of the Federal Deposit Insurance Act; 12 U.S.C. 1828(a)(4). https://www.fdic.gov/regulations/laws/rules/1000-2000.html#:~:text=1000%20%2D%20Federal%20Deposit%20Insurance%20Act&text=(A)%20IN%20GENERAL.,be%20prescribed%20by%20the%20Corporation.
2. “A Brief History of Deposit Insurance in the United States.” Federal Deposit Insurance Corporation. Sep. 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. Jun. 1983. https://www.jstor.org/stable/1837095?seq=2.
4. 12 U.S.C. 1818(a).
5. Section 126(a) of the Emergency Economic Stabilization Act of 2008. .
6. For example, nonbank entities that place a customer’s deposits into an insured depository institution (IDI) must identify the IDIs into which the funds may be placed. The nonbank must have existing direct or indirect relationships with such IDIs. This will enable customers to verify the claims regarding the insured status of their funds. The final rule permits nonbank entities that place deposits through a deposit network to provide customers with a hyperlink to a current list of the IDIs in the network.
7. Section 328.109 was added to the final rule and states, “No provision of this subpart shall be construed as barring 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 U.S.C. 1831t.
9. “Consumer Financial Protection Circular 2022-02: Deceptive representations involving the FDIC’s name or logo or deposit insurance.” Consumer Financial Protection Bureau. May 2022.