Just one day after announcing that it was launching a new system to provide guidance to other agencies with consumer financial protection responsibilities on how the CFPB intends to enforce federal consumer financial laws, the CFPB released its first Consumer Financial Protection Circular (2022-02) addressing deceptive representations involving the FDIC’s name or logo or deposit insurance. As indicated by the CFPB, the Circular was issued in connection with the FDIC’s issuance of a final rule implementing the Federal Deposit Insurance Act’s (FDIA) prohibition on false advertising through the misuse of the FDIC’s name or logo or making knowing misrepresentations about deposit insurance coverage.
CFPB Circulars. As described by the CFPB, in furtherance of the CFPB’s mandate in the Consumer Financial Protection Act (CFPA) to ensure federal consumer financial law is enforced consistently, Consumer Financial Protection Circulars are intended to promote consistency in approach across the various federal and state regulators and officials with authority to enforce federal consumer financial laws. The Circulars are also intended to provide transparency to partner agencies regarding the CFPB’s intended approach when cooperating in enforcement actions. With regard to their legal basis and force, the CFPB states:
Consumer Financial Protection Circulars are general statements of policy under the Administrative Procedure Act. 5 U.S.C. 553(b). They provide background information about applicable law, articulate considerations relevant to the Bureau’s exercise of its authorities, and, in the interest of maintaining consistency, advise other parties with authority to enforce federal consumer financial law. They do not restrict the Bureau’s exercise of its authorities, impose any legal requirements on external parties, or create or confer any rights on external parties that could be enforceable in any administrative or civil proceeding. The CFPB Director is instructing CFPB staff as described herein, and the CFPB will then make final decisions on individual matters based on an assessment of the factual record, applicable law, and factors relevant to prosecutorial discretion.
The first Circular addresses the question of when representations involving the FDIC’s name or logo or deposit insurance constitute a deceptive act or practice in violation of the CFPA. The CFPB states that covered persons or service providers likely violate the CFPA’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, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly. It also states that representations made by covered persons or service providers about FDIC insurance will typically be material.
By way of example, the CFPB states that “if a person engages in or purports to engage in deposit-taking activity by accepting (or offering to accept) funds for use by consumers, and that person misrepresents that such funds are insured by the FDIC, that person likely violates the CFPA’s prohibition on deception, even if the misrepresentation was not made knowingly.” The CFPB labels “similarly deceptive” claims that consumer financial products or services are “regulated” by the FDIC or “insured” or “eligible for” FDIC insurance if those claims expressly or implicitly indicate that the product is FDIC-insured when that is not in fact the case. It observes that “[i]n particular, firms offering or providing digital assets, including crypto-assets, may be particularly prone to making such deceptive claims to consumers about FDIC deposit insurance coverage.”
As noted above, the CFPB linked its issuance of the Circular to the FDIC’s issuance of a final rule on misuse of the FDIC’s name or logo or misrepresentations about deposit insurance coverage. In the background discussion of its final rule, the FDIC notes that a section of the final rule authorizes the FDIC to notify other authorities (including state regulators) of conduct that may fall within their jurisdiction. The FDIC also states that it recognizes the importance of working with other federal and state agencies to address false, misleading, or otherwise deceptive representations regarding deposit insurance and indicates that conduct that violates the FDIA’s prohibition could violate other statutory schemes such as the CFPA and Section 5 of the FTC Act. The FDIC indicates that nothing in its final rule should be read to limit the authority of any state or federal agency or individual, including but not limited to the CFPB, the FTC, Federal Reserve Board, DOJ, and state attorneys general.
Consistent with the FDIC’s express acknowledgment of the CFPB’s authority to use the CFPA’s UDAAP prohibition to address deceptive representations regarding deposit insurance, the Circular provides guidance on how the CFPB intends to exercise that authority. While it does not appear that the CFPB attempted to expand its UDAAP authority in this Circular, we will be watching whether the CFPB continues that approach or attempts to use the Circulars to advance novel interpretations of its UDAAP or other authority.
FDIC Final Rule. The FDIC’s final rule addressing “False Advertising, Misrepresentation of Insured Status and Misuse of the FDIC’s Name or Logo,” which will be effective 30 days after the date it is published in the Federal Register, implements section 18(a)(4) of the FDIA. Section 18(a)(4) prohibits any person from misusing the FDIC’s name or logo or from engaging in false advertising or making knowing misrepresentations about deposit insurance. The final rule establishes the process by which the FDIC will identify and investigate conduct that may violate section 18(a)(4), the standards under which such conduct will be evaluated, and the procedures the FDIC will follow when formally and informally enforcing section 18(a)(4).
In describing the final rule’s expected effects, the FDIC states: The final rule 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.” Underscoring the CFPB comment noted above about digital assets, the CFPB states in the Circular: “Representations about deposit insurance may be particularly relevant with respect to new technologies such as digital assets, including crypto-assets.” These statements make clear that fintechs and other nonbanks should carefully review their advertising and other materials to make sure they do not run afoul of the FDIC rule or create UDAAP risk.