Published Article

FDIC Final Rule and its Impact on Bank Partnerships

June 16, 2022

On May 17, 2022, the Federal Deposit Insurance Corporation (FDIC) adopted a final rule establishing a new subsection B to the Federal Deposit Insurance Act (FDIA) addressing False Advertising, Misrepresentation of Insured Status, and Misuse of the FDIC’s Name or Logo. The rule was the result of an “increasing number of instances where individuals or [financial service providers or other] entities have misused the FDIC’s name or logo, or made false or misleading representations about deposit insurance.” Between January 1, 2019, and December 31, 2020, the FDIC resolved at least 165 instances regarding the potential misuse of the FDIC’s name or logo and/or misrepresentations related to deposit insurance. The Consumer Financial Protection Bureau (“CFPB”) immediately followed with a Consumer Financial Protection Circular indicating that a violation of the new FDIC rule would likely result in a violation of the Consumer Financial Protection Act’s prohibition on Unfair, Deceptive, or Abusive Acts or Practices.

The FDIC specifically acknowledged that the final rule primarily affects non-bank entities and individuals who are potentially misusing the FDIC’s name or logo or making misrepresentations about deposit insurance. As a result, bank partner participants, who may assist the insured depository institution by providing marketing, technology platforms, or providing other services, should pay particular attention to this Rule.

Of particular note to bank partner programs, the new subsection B prohibits advertisements that (a) include a statement or symbol implying the existence of deposit insurance in relation to a non-deposit product or hybrid product that is not in fact insured or guaranteed; (b) publication or dissemination of information that suggests or implies that the party making the representation is an FDIC-insured institution if this is not in fact true; and (c) publication or dissemination of information that suggests or implies that the party making the representation is associated with an FDIC-insured institution if the nature of the association is not clearly, conspicuously, prominently, and accurately described.

Further, the rule prohibits any false or misleading representations about deposit insurance. For example, a statement may be false or misleading if it materially omits pertinent information to allow a reasonable consumer to understand the parameters of the FDIC coverage. Notably, it is a material omission to fail to identify the Insured Deposit Institution with which the representing party has a direct or indirect business relationship for the placement of deposits and into which the consumer’s deposits may be placed.

In summary, the FDIC rule, and subsequent CFPB circular, will impact how non-bank entities advertise and offer products in connection with insured depositories. Among other considerations, non-bank entities must take care to clearly disclose the insured depository institution that will be holding consumer funds, and avoid using language that may mislead a consumer as to the insured or guaranteed status of any consumer deposits.

Reprinted with permission from the American Bar Association’s Business Law Today May Month-In-Brief: Business Regulation & Regulated Industries.