Letter to FDIC on False Advertising NPR

Mr. James P. Sheesley
Assistant Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429

Dear Mr. Sheesley:

The Bank Policy Institute and the American Bankers Association (together, the “Associations”) appreciate the opportunity to provide comments on the Federal Deposit Insurance Corporation’s notice of proposed rulemaking and request for information relating to false advertising, misrepresentation of insured status, and misuse of the FDIC’s name or logo (“Proposal”). We applaud the agency for recognizing the increasing number of potential violations of the underlying statute and agree a clearer, more robust process by which the FDIC identifies and investigates these acts benefits not only banks and other financial organizations, but consumers of financial products as well.

As described in section II of the Proposal, the Associations also have noted an increase in the misuse of FDIC signage and misrepresentation of deposit insurance status by non-bank financial institutions. The financial services industry is increasingly migrating to online or other virtual advertisements and product offerings, and the number of insured depositories partnering with other financial service providers continues to grow. These trends make modern signage regulations – and a robust process to deter and prosecute misrepresentation – imperative.

The growing instances of misuse of the FDIC’s name or logo is of particular concern for the Associations due to the potential for significant consumer confusion and the reputational risk misrepresentation can pose to our members. Though seemingly straightforward, the nuances of deposit insurance and the similarities of products offered by insured and non-insured firms, makes assessing whether and how a deposit is insured increasingly difficult.

Several recent instances reported in the financial and other media involve non-bank financial institutions implying FDIC insurance coverage in a manner which could easily confuse or mislead the average consumer. These often include entities that utilize partner banking relationships or pass-through insurance advertising that funds deposited with them are FDIC insured, without clear disclaimers that such funds are only insured once they are swept to the partner bank. These entities may fail to disclose the identity of their partner banks or may do so inaccurately. There also have been instances of firms including language in their terms and conditions or advertising that asserts FDIC insurance coverage well in excess of the $250,000 limit through multiple partner banking relationships, which while presumably truthful, further confuses and misleads consumers, degrading the FDIC’s core message and intentions.

We note that there is overlap between the Proposal and the FDIC’s recent Request for Information on Sign and Advertising Requirements (“RFI”) and refer the FDIC to the comments submitted by the Associations in response to the RFI. We again encourage the FDIC to take steps to minimize consumer confusion by requiring non-banks that maintain balances on behalf of consumers to adhere to FDIC signage and disclosure regulations, and clearly indicate that they are not FDIC members and that the balances held are not FDIC-insured. Given the diversity of the activities and businesses of non-bank entities, we encourage the FDIC to coordinate with other financial and market regulators to ensure a consistent approach with respect to addressing potentially deceptive practices by non-bank entities. Additionally, we reiterate the recommendation that the FDIC provide clear and easily accessible tools to help consumers distinguish insured depository institutions from other financial services providers. FDIC insurance is synonymous with the word “bank” and this improvement will help to preserve that association.

The remainder of this letter provides comments on the specific provisions of the Proposal.

Download the comment letter to read the full text.