A final rule prohibiting any person or organization from making misrepresentations about federal bank deposit insurance or misusing the insurer’s name or logo was approved Tuesday by the Federal Deposit Insurance Corp. (FDIC).
The final rule, approved 3-0, implements the FDIC’s authority to impose prohibitions on such activity.
“These practices not only harm those who are targeted with the false promise of deposit insurance, but, if left unchecked, could also undermine confidence in the FDIC, FDIC-insured banks, and the U.S. banking system,” said Acting Chairman Martin J. Gruenberg.
The FDIC, in its announcement, said it has in recent years observed an increasing number of instances where individuals or entities have misused the FDIC’s name or logo, or have made false or misleading representations about deposit insurance.
The agency, in a Financial Institution Letter (FIL-21-2022), said that Section 18(a)(4) of the Federal Deposit Insurance Act (FDICA) prohibits any person from making false or misleading representations about deposit insurance, using the FDIC’s name or logo in a manner that would imply that an uninsured financial product is insured or guaranteed by the FDIC, or knowingly misrepresenting the extent or manner of deposit insurance. The agency is authorized by statute to investigate violations and take action to enforce the prohibitions.
The final rule, it said, describes:
(1) the process by which the FDIC will identify and investigate conduct that may violate the prohibitions against misuse and misrepresentation;
(2) the standards under which such conduct will be evaluated; and
(3) the procedures that the FDIC will follow when formally and informally enforcing these prohibitions.
The FDIC solicited feedback on this topic in 2020 and 2021 requests for information; it issued its proposed rule in May 2021. It said it received a total of 19 responses, all of which expressed support for the proposed rule.
The final rule, adopted with minor changes in response to commenters, will primarily affect non-bank entities and individuals who are potentially misusing the FDIC’s name or logo or are making misrepresentations about deposit insurance, the agency said.
Both Michael J. Hsu, acting comptroller at the Office of the Comptroller of the Currency (OCC), and Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), issued statements along with Acting FDIC Chairman Martin Gruenberg discussing the public’s trust in federal bank deposit insurance and the need to protect consumers from misrepresentations about such coverage by providers of non-insured products.
“This final rule is timely given changes in the marketplace, technological developments, and rapidly evolving consumer behaviors. It is especially important in light of the growth of nonbank crypto firms and fintechs and their relationships with banks,” Hsu said.
“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,” said Chopra.
The final rule will take effect 30 days after publication in the Federal Register.
Statement by Acting Chairman, Martin J. Gruenberg
Statement by OCC Acting Comptroller Michael J. Hsu