On December 13, 2022, the US Federal Deposit Insurance Corporation ("FDIC") released a notice of proposed rulemaking ("Proposal") to revise its regulations on the use of the FDIC sign and advertising requirements related to deposit insurance coverage.1 Most notably, the Proposal would impose new requirements for deposit insurance "signage" on banks'2 websites and mobile applications. The Proposal also would revise certain aspects of the FDIC's regulations on false advertising, misrepresentation on insured status, and misuse of the FDIC's name or logo and could have a significant effect on pass-through insurance arrangements and digital asset activity by banks.
Comments on the Proposal are due by February 21, 2023. In this Legal Update, we provide background on the FDIC's signage and advertising requirements and discuss the key elements of the Proposal.
Section 18(a) of the Federal Deposit Insurance Act ("FDIA") grants the FDIC authority to prescribe regulations with respect to sign and advertising statement requirements for insured banks. The FDIC promulgated signage and advertising regulations many years ago and these requirements have not been revised since 2006.3
The FDIC's official sign and advertising statement regulations require banks to continuously display the FDIC official sign where insured deposits are usually and normally received in the bank's principal place of business and at all of its branches and to use an official advertising statement, such as "Member FDIC," when advertising deposit products and services. The current rules focus on banks' display of the official sign at teller windows or stations. The Proposal would revise rules to reflect how depositors do business with banks today, including through digital and mobile channels.
The Proposal would substantially revise the FDIC's rules for signage and advertising related to deposit insurance and modestly revise the application of the misrepresentation prohibition in specific situations, including where consumers could be misled as to the extent of deposit insurance coverage. It also would require banks to establish and maintain written policies and procedures to comply with part 328, including, as appropriate, provisions related to monitoring and evaluating activities of persons that provide deposit-related services to the bank or offer the bank's deposit-related products or services to other parties.
The Proposal would retain the existing design of the official sign and symbol for the FDIC. Consistent with current regulations, all banks would be required to continuously, clearly, and conspicuously display the official sign in their principal place of business and all their US branches. However, the Proposal would add new signage requirements for traditional footprint branches and non-traditional branches or other places of business, such as café-style branches.
If a location:
- Offers only deposit products: The bank would be required to display the official sign in one or more locations visible from the teller windows or stations in a size large enough to be legible from anywhere in those areas.
- Receives insured deposits in areas of the premises other than teller windows or stations: The bank would be required to display the official sign in one or more locations visible from those areas in a size large enough to be legible from anywhere in those areas.
- Also offers non-deposit products on the premises: The bank would be required to physically segregate the areas where non-deposit products are offered from areas where insured deposits are usually and normally accepted and continuously display a separate sign in the non-deposit areas indicating that non-deposit products (1) are not insured by the FDIC, (2) are not deposits, and (3) may lose value.
The Proposal defines "digital deposit-taking channels" to mean any electronic communications methods through which a bank accepts insured deposits. This would include, but not be limited to, bank websites, web-based applications, and mobile applications that offer consumers access to insured deposits at the bank.
Under the Proposal, a bank would be required to clearly, continuously, and conspicuously display the digital sign on the bank's homepage, landing, and login pages or screens and transactional pages or screens involving insured deposits, to the extent applicable. The digital sign would prominently bear the name of the FDIC, state that insured deposits are backed by the full faith and credit of the US government, and indicate that each depositor is insured up to at least $250,000. To be clear and conspicuous, the digital sign must be displayed in a continuous manner, near the top of the relevant page or screen in close proximity to the bank's name. A rotating display that displays the required sign periodically would not satisfy the continuous requirement.
If a digital deposit-taking channel offers access to both deposits and non-deposit products, the bank would be required to clearly, conspicuously, and continuously display signage indicating that the non-deposit products are (1) not insured by the FDIC, (2) are not deposits, and (3) may lose value. Banks would be required to display this non-deposit signage via a one-time notification when consumers initially access such a page. Moreover, consumers would need to take action to dismiss the notification-for example, a "pop-up," "speedbump," or "overlay"-before using the relevant page or screen.
With respect to automated teller machines ("ATM") and similar devices, the Proposal would require the bank to, at a minimum, display the official FDIC sign on the home page or screen and each transaction page or screen relating to deposits. Where an ATM or similar device both receives deposits for a bank and offers access to non-deposit products, the device would be required to clearly, continuously, and conspicuously display disclosures indicating that non-deposit products (1) are not insured by the FDIC, (2) are not deposits, and (3) may lose value. The Proposal would require the display of these disclosures on each transaction page or screen relating to non-deposit products.
The Proposal builds off of action taken by the FDIC in May of this year to implement new rules that address misrepresentations about deposit insurance and the use of the FDIC's name and logo by the private sector. (We discussed those updates in a journal article released earlier this year.)
The Proposal would expand the examples in the prohibition
against misrepresentations. For example, a non-bank's use of
the "Member FDIC" logo on its website or in its marketing
materials would be a misrepresentation unless that logo is next to
the name of one or more banks. Also, a non-bank's use of either
the official FDIC sign or the digital sign that banks would be
required to display through their digital deposit-taking channels
would be a misrepresentation if this use inaccurately implies that
the non-bank is insured by the FDIC and backed by the full faith
and credit of the US government.
Non-banks that deposit their customers' funds at banks may make statements regarding deposit insurance coverage for those funds. Absent additional context, the FDIC believes that such statements may misrepresent the insured status of the non-bank and suggest that the FDIC's deposit insurance will protect consumers in the event of the non-bank's insolvency. The Proposal would provide that if a non-bank makes statements regarding deposit insurance for its customers, it is a material omission for the non-bank to fail to clearly and conspicuously disclose that it is not itself an FDIC-insured institution and that the FDIC's deposit insurance coverage only protects against the failure of an FDIC-insured depository institution. Additionally, the Proposal states that if a person makes statements regarding deposit insurance in a context that involves both deposits and non-deposit products, it is a material omission to fail to disclose that non-deposit products (1) are not insured by the FDIC, (2) are not deposits, and (3) may lose value. If the Proposal is finalized, banks and deposit brokers may consider reviewing their disclosures for this item.
"Non-deposit Product" to Include Crypto-assets
Part 328 currently prohibits a person from representing or implying that an Uninsured Financial Product (defined below) is insured or guaranteed by the FDIC. This prohibition applies to advertisements, publications, and other disseminations of information. Due to the growing number of misrepresentations of insurance coverage in relation to crypto-assets, 4 the FDIC believes that part 328 should be amended to clarify that representations involving crypto-assets fall within its scope.
The Proposal would amend the definitions of "Non-Deposit Product" and "Uninsured Financial Product" to include crypto-assets and define crypto-assets as "any digital asset implemented using cryptographic techniques." Notably, this approach implies that crypto-assets cannot be a deposit product or insured by the FDIC. While this approach is consistent with the view recently expressed by the Office of the Comptroller of the Currency ("OCC"), it may slow the development of digital deposit products.5
Claims About Pass-through Insurance
The FDIC has recognized "pass-through" deposit insurance coverage, and these pass-through insurance arrangements are growing in popularity. However, pass-through insurance only applies if certain regulatory requirements are met. Marketing for these arrangements typically includes claims that pass-through insurance protection is available for consumers' funds. The FDIC believes that these statements, unless properly qualified, may be misleading and fail to adequately inform consumers of potential risks. The Proposal would provide that if a statement is made regarding pass-through deposit insurance coverage, it would be a material omission to fail to also clearly and conspicuously disclose that such coverage is subject to certain regulatory requirements being satisfied.
Policies and Procedures
The Proposal would require banks to establish and maintain written policies and procedures related to these signage and advertising requirements that are commensurate with the nature, size, complexity, scope, and potential risk of the deposit-taking activities of the institution. As part of these policies and procedures, banks would also need to include, as appropriate, provisions related to monitoring and evaluating activities of persons that provide deposit-related services to the bank or offer the bank's deposit-related products or services to other parties. When third parties are acting as a deposit-taking channel for a bank, the Proposal also would require that the relevant policies and procedures include reasonable provisions to review and monitor the marketing materials provided to depositors to ensure that the availability of deposit insurance is not misrepresented. This is consistent with the banking regulators' focus on third-party risk management. The policies and procedures related to certain third parties would be commensurate with the nature, size, complexity, scope, and potential risk of the deposit-taking activities. With regard to third-party relationships, banks would be expected to focus on the relationships that pose a higher degree of risk to consumers.
Additionally, Rohit Chopra, director of the Consumer Financial Protection Bureau ("CFPB"), released a statement on the Proposal in his role as a director at the FDIC.6 He characterized the target of the Proposal as "convoluted bank-nonbank partnerships" and specified that "pass-through deposit insurance coverage is not automatic or certain." These assertions may unsettle many market participants who have been accustomed to the legal certainty provided in the current brokered deposit and deposit insurance coverage rules. Therefore, the Proposal, combined with the current enforcement postures of the FDIC and CFPB, may discourage innovation in financial services, including bank partner programs.
Additional author: Brandon Dennis
1. FDIC, FDIC Issues A Proposed Rule To Modernize the Use of the FDIC Official Sign and Advertising Statement and to Clarify its Regulations Regarding False Advertising, Misrepresentations About Insured Status, and Misuse of the FDIC's Name or Logo (Dec. 13, 2022), https://www.fdic.gov/news/press-releases/2022/pr22085.html; 87 Fed. Reg. 78,017 (Dec. 21, 2023).
2. The Proposal would directly apply to depository institutions whose deposits are insured by the FDIC. For ease of discussion, we refer to these institutions as "banks" in this Legal Update.
3. See 12 C.F.R. pt. 328, subpt. A.
4. See FDIC Press Release PR-60-2022, FDIC Issues Cease and Desist Letters to Five Companies for Making Crypto-Related False or Misleading Representations About Deposit Insurance (Aug. 19, 2022).
5. See OCC, Cond. App. No. 1299 (October 27, 2022).
6. CFPB, Statement of CFPB Director Rohit Chopra (Dec. 13, 2022), https://www.consumerfinance.gov/about-us/newsroom/statement-of-director-chopra-notice-of-proposed-rulemaking-on-fdic-official-sign-and-false-advertising-rule/.
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