On December 13, 2022, the FDIC issued a request for comment on a proposal to modernize the regulations governing use of the FDIC’s official signage and advertising of FDIC-insured status by insured depository institutions (IDIs), and to clarify regulations issued earlier in 2022 regarding misrepresentations of deposit insurance coverage. The proposed rule was published in the Federal Register on December 21, 2022 and comments are due no later than February 21, 2023.
The proposed rule is the FDIC’s latest pronouncement on topics the agency has focused on repeatedly in recent months: use and misuse of the FDIC name, logo and official signage, and misrepresentation of insured status. A final rule issued by the FDIC on May 17, 2022 expanded the scope of the previously existing official signage and advertising rules by adding more detail about prohibitions against engaging in false advertising or making misrepresentations about deposit insurance. (Click here to listen to our podcast episode about the final rule.) The CFPB chimed in at that time to support the FDIC rule, asserting that such misrepresentations would violate the CFPA’s prohibition on deceptive conduct. Shortly after issuing that final rule, the FDIC quickly followed with advisory guidance to IDIs, and began pursuing investigations and enforcement actions against a number of fintechs in connection with alleged misrepresentations about insured status, in particular fintechs offering crypto-related products.
The FDIC’s stated policy objectives to be achieved by the rule now being proposed include bringing “the certainty and confidence historically provided by the FDIC sign at traditional IDI branch teller windows to the varied and evolving digital channels through which depositors are increasingly handling their banking needs today.” The agency proposes to accomplish this by means including signage requirements that would apply to all banking channels, would more clearly distinguish between insured deposits and non-deposit products, and would better distinguish IDIs from non-bank fintechs that offer options for accessing banking products and services. The proposed rule further would amend the FDIC’s recent regulation addressing misrepresentations of deposit insurance coverage: “In particular, the FDIC is concerned that certain business relationships between IDIs and non-banks may be confusing to consumers, and proposes to require clear disclosures that would better inform consumers as to when their funds are protected by FDIC deposit insurance.”
The proposed rule includes a complete rewrite of Subpart A of 12 CFR Part 328, with extensive changes, and material changes to Subpart B. The regulation would continue to require FDIC signage at physical bank premises, with certain changes to the current requirements some of which are intended to add a level of flexibility, such as by permitting use of electronic signs subject to certain limitations. New requirements for banks added by the proposed rule would mandate display of a digital FDIC sign on banks’ digital deposit-taking channels, such as online banking websites and mobile applications, display of FDIC signage on ATM screens, and use of a “non-deposit sign” to clarify when a non-insured product is offered at the same banking location or through the same banking channel as an insured deposit.
The FDIC also is proposing limited changes to its official advertising statement requirements, adding an option for a shortened statement.
The proposed regulations include more detail about what the agency would consider misuse of FDIC-associated terms and images by non-banks: “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 IDIs.” The proposal also warns against practices that would constitute a material omission prohibited by the regulation, such as failure to disclose that a person is a non-bank when a statement is made regarding deposit insurance, and failure to state that non-deposit products are not insured by the FDIC when a statement is made regarding deposit insurance.
Reflecting the agency’s ongoing concerns about crypto-related products, the proposed rule would explicitly include crypto-assets in the regulation’s definition of “non-deposit product.”
CFPB Director Rohit Chopra, a member of the FDIC Board of Directors, issued a statement in support of the proposed rule, noting that due to significant evolution in the financial sector including online and mobile banking, increased offerings of uninsured financial products, and “convoluted” bank-nonbank partnerships, this update to the regulations is long overdue.
We encourage banks, fintechs, and industry trade groups to carefully review this proposal and take the opportunity to provide thoughtful input to the FDIC, including with regard to the operational burdens and costs (initial and ongoing) that may be imposed by the proposed rule if adopted, and what might be a reasonable date by which compliance would be mandatory.