Today, the FDIC Board of Directors is voting on a final rule to update the framework governing official FDIC signs and advertising requirements, as well as misrepresentations related to federal deposit insurance.
This may seem like a random issue for the Board to focus on, but it’s not. There is now a murky convergence of nonbanks, banks, and deposit-style products in the market. Nonbanks are increasingly offering deposit-style products in partnership with banks. The nonbanks often tout that consumer funds benefit from FDIC insurance on a pass-through basis to leverage the FDIC’s reputation.
But “depositing” your funds with a nonbank is different than a deposit with an insured bank, even if the funds are indeed eligible for pass-through insurance. Pass-through insurance coverage is not automatic or guaranteed. Moreover, it does not protect the public from certain risks associated with the failure of the nonbank, including the potential for frozen funds.
In addition to pass-through insurance arrangements with banks, nonbanks may also offer standalone products that look like deposits. Venmo, Cash App, and PayPal, for example, offer a general balance product. If the nonbank entity fails, consumers that have funds stored in these general balance products may lose their money. Addressing these issues will be challenging.
At a minimum, we must update the sign and advertising rules last updated in 2006. The rule changes we are voting on today include new sign and disclosure requirements for digital banking channels, requirements for segregating deposit and non-deposit areas within branches, and disclosures that clarify non-deposit products offered by banks are not insured by the FDIC, are not deposits, and may lose value. These provisions sensibly adapt our framework to the modern banking experience.
Even with this rule, and certain provisions that seek to clarify arrangements between banks and nonbanks, there is still the real possibility of confusion. Given limitations on the FDIC’s authority, federal and state consumer protection agencies will need to use their broader authorities to prevent unfair, deceptive, or abusive acts or practices.
The CFPB is taking a close look at these schemes and products. Our 2022 guidance reminds market participants that they likely violate the Consumer Financial Protection Act’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.1 Last month, we proposed subjecting nonbank payment companies to the same supervisory exam process as banks, where we can determine if these outfits are stretching the truth on federal deposit insurance coverage or otherwise implying they are banks.2 We also issued a nationwide consumer advisory urging consumers to always sweep funds stored on popular nonbank payment apps to their insured accounts.3
At the end of the day, people recognize the FDIC’s logo, the classic black and gold sign at teller windows, and the standard “Member FDIC” disclaimer in ads. These symbols and phrases may seem quaint, but they invoke and embody the trust that our banking system is built on.
I support today’s final rule and hope we will continue to pursue initiatives that limit misrepresentations and the ability of bad actors to exploit the public’s confidence in the FDIC.
- Consumer Financial Protection Circular 2022-02
- CFPB Proposes New Federal Oversight of Big Tech Companies and Other Providers of Digital Wallets and Payment Apps
- Consumer advisory: Your money is at greater risk when you hold it in a payment app, instead of moving it to an account with deposit insurance