The FDIC has issued an Advance Notice of Proposed Rulemaking (ANPR) seeking comment on its regulatory approach to brokered deposits and interest rate restrictions.

The FDIC’s current regulations on brokered deposits and interest rate restrictions are set forth at 12 C.F.R. Section 337.6.  Such regulations implement Section 29 of the Federal Deposit Insurance Act which restricts an insured depository institution that is less than well capitalized from soliciting or accepting deposits by or through a “deposit broker.”  It also imposes restrictions on the interest rate that such institutions can pay on deposits.  

The FDIC states in the ANPR that it is undertaking a “comprehensive review[] [of] its brokered deposit and interest rate regulations in light of significant changes in technology, business models, the economic environment, and products since the regulations were adopted.”  Through the ANPR, the FDIC seeks input on how it “can improve its implementation of Section 29 of the FDI Act, while continuing to protect the safety and soundness of the banking system.”  The FDIC also seeks input on a series of specific questions, with one set of questions directed at  brokered deposits and a second set directed at interest rate restrictions.

In addition to two sections that discuss various issues concerning brokered deposits and interest rate restrictions, the ANPR’s Supplementary Information contains a section that reviews the current law and regulations and their history and another section that reviews the history of brokered deposit use by insured institutions, including the impact of the bank failures that occurred during the 1980s, and related research findings.  The ANPR also includes two appendices: Appendix 1 providing “descriptive statistics detailing the historical holdings of brokered deposits by bank size and [Prompt Corrective Action] capital classification status” and Appendix 2 providing an updated analysis of core and brokered deposits using data through the end of 2017.

Given the infrequency with which the FDIC has granted waivers to the interest rate restrictions for banks that are deemed less than well capitalized (including banks that have entered into an enforcement action with a capital provision), a reexamination of the brokered deposit rules will be viewed positively by the industry.  Further, although a financial institution could use brokered deposits to fund rapid growth, brokered deposits can be a more stable long-term funding source on a financial institution’s balance sheet.  The industry will benefit if financial institutions can use brokered deposits responsibly without significant limitations to manage liquidity needs and limit interest rate risk.

Responses to the ANPR will be due no later than 90 days after the date of its publication in the Federal Register.  


Last week, Representative Blaine Luetkemeyer, Chair of the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit, and Representative Scott Tipton sent a letter to Jelena McWilliams, Chair of the FDIC, that identified concerns with the FDIC’s interpretations and regulations surrounding brokered deposits and requested the FDIC to revisit its June 2016 Frequently Asked Questions on Identifying, Accepting and Reporting Brokered Deposits “in light of the rapid technological changes in the banking and payments industry.”

Congressmen Luetkemeyer and Tipton assert that the FAQ is inconsistent with the definition of “deposit broker” under 12 C.F.R. § 337.6(a)(2).  The regulation defines a brokered deposit as “any deposit that is obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker.”  The term “deposit broker” is defined under 12 USC §1831f to include “(A) any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties; and (B) an agent or trustee who establishes a deposit account to facilitate a business arrangement with an insured depository institution to use the proceeds of the account to fund a prearranged loan.”

The Congressmen believe that the broad classifications in the FAQ of what deposits are brokered and when an entity is a deposit broker: (1) exposes institutions to restrictive and costly supervisory limits and deposit insurance assessments; (2) has reduced the number of financial institutions that can afford to participate in certain markets and, thereby, limited consumer access to financial products; (3) interfered with innovation; and (4) diminished the access of financial institutions to “stable sources of deposits,” thereby “limiting the funding banks can make available for lending to small businesses and consumers.”

By way of example, the 2016 FAQ states that deposits generated by “advertising or referrals by third parties (such as nonprofit affinity groups as well as commercial enterprises), in exchange for volume-based fees” would be deemed brokered deposits even if the customers themselves would subsequently become core customers of the institution.  The FAQ further states that “[i]f a company merely designs deposit products or deposit accounts for one or more banks, without placing deposits or facilitating the placement of deposits at these banks, the company will not be classified as a deposit broker,” but if a company also markets a bank’s deposit products in exchange for volume-based fees, then it would be a deposit broker.

When considering the costs of the design of new deposit products and the development of new technological applications to serve financial institution customers, a determination that the use of volume-based fees will cause deposits to be deemed brokered deposits does appear to stifle innovation and limit the ability of financial institutions with fewer resources to develop technological advances that would benefit consumers.

The FDIC has not yet responded.

The following bills were passed by the House earlier this week:

  • The “Making Online Banking Initiation Legal and Easy (MOBILE) Act, H.R. 1457.  Passed by a vote of 397-8, the MOBILE Act would allow a bank to scan and retain personal information from a state-issued driver’s license or personal identification card when an individual seeks to open an account online or obtain a financial product or service online.  The bill would also allow a bank to use the license or identification card to verify the individual’s identity and comply with a legal requirement to record, retain, or transmit the personal information of an individual seeking to open an account online or obtain a financial product or service online.  According to the accompanying House Report, the bill is intended to create a “new national standard” that would preempt state laws that do not permit the scanning of state-issued driver’s licenses or personal identification cards to verify a customer’s identity.  The bill contains an express preemption provision.  While the bill expands the documentation a bank can use to verify a customer’s identity in an online transaction, it does not require a bank to accept such documentation or limit a bank’s ability to decide who is eligible to open an account.
  • The “Federal Savings Association Charter Flexibility Act of 2017,” H.R. 1426.  Passed by a voice vote, the bill would allow a federal savings association to exercise the powers of a national bank without converting to a national bank charter.  According to the accompanying House Report, the bill is intended to allow a federal savings association to exceed the commercial and consumer loan limits to which it is subject under the Home Owners Loan Act while continuing to be treated as a federal savings association for purposes of governance, consolidation, merger, dissolution, conservatorship, and receivership.  Under the bill, a federal savings association would have to submit a notice of election to operate as a national bank and, unless the OCC otherwise notified the association, the election would be deemed approved 60 days after the OCC received notice.

The CFPB and four other agencies have issued “Interagency Guidance Regarding Deposit Reconciliation Practices.”  The other agencies are the OCC, Fed, FDIC, and NCUA.  The guidance is intended to set forth the agencies’ supervisory expectations regarding consumer account deposit reconciliation practices.

For purposes of the guidance, a “credit discrepancy” is created when the amount that a bank credits to a customer’s account differ from the total of the items deposited.  The guidance refers to a discrepancy that results in a customer being credited with less than the full amount deposited as “a detriment to the customer” that “benefits the financial institution, if not appropriately reconciled.”  The guidance indicates that “[t]echnological and other processes exist that allow financial institutions to fully reconcile discrepancies in deposit accounts.”  (The agencies acknowledge, however, that there are limited circumstances in which items cannot be reconciled, such as when an item is damaged to the point that its true amount cannot be determined.)  The guidance notes that the agencies have observed that “[i]n some instances, financial institutions do not research or correct [all discrepancies], resulting in the customer not receiving the full amount of the actual deposit.”

The guidance discusses applicable laws, such as the funds availability requirements of the Expedited Funds Availability Act and Regulation CC, and notes that a financial institution’s policies or practices that do not appropriately reconcile credit discrepancies within the prescribed time frames could raise Regulation CC concerns if a customer is left without timely access to the correct amount of funds due to a discrepancy.  It also notes that a financial institution’s deposit reconciliation practices, depending on the facts and circumstances, can result in unfair or deceptive practices that violate Section 5 of the FTC Act or Sections 1031 and 1036 of the Dodd-Frank Act.

The agencies state that they expect financial institutions “to adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged.”  They further state that financial institutions are expected to “effectively manage their deposit reconciliation practices to comply with Regulation CC and other applicable laws or regulations and to prevent potential harm to their customers.”  Financial institutions are also expected to provide accurate information to customers about their deposit reconciliation practices and implement “effective compliance management systems that include appropriate policies, procedures, internal controls, training, and oversight and review processes to ensure compliance with applicable laws and regulations, and fair treatment of customers.”

At a minimum, the guidance appears to mean that a bank should not have policies or practices under which the amount encoded on the deposit slip is automatically accepted as correct in all circumstances or when such amount does not vary from the amount of the items deposited by more than a specified amount.  Such policies or practices would necessarily create the potential for the customer to receive a credit for less than the amount actually deposited.

Instead, it appears a bank should have policies and practices that (1) pending further investigation, automatically give the customer the benefit of the greater amount when the amount encoded on the deposit slip varies from the items deposited (either regardless of the amount of the discrepancy or when the discrepancy is not more than a specified amount), or (2) immediately investigate and reconcile all discrepancies (or any discrepancies for which the customer is not automatically given the benefit of the greater amount).

On June 21, 2016, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar on the guidance:  Interagency Deposit Reconciliation Guidance: Will Your Bank’s Practices Meet Expectations?  The webinar registration form is available here.


Senator Sherrod Brown, ranking member of the Senate Banking Committee, has sent a letter to President Obama that asks the President to prioritize funding in his FY 2017 budget proposal for programs in Title XII of the Dodd-Frank Act that are intended to assist lower income borrowers.  Title XII has not yet been implemented.

The programs authorized by Sections 1205 and 1206 of Title XII provide federal grants and other financial support to “eligible entities” to enable them to provide “low-cost, small loans to consumers that will provide alternatives to more costly small dollar loans.”  “Eligible entities” include community development financial institutions, federally-insured depository institutions, and state, local, or tribal government entities.

Community development financial institutions (CDFI) are financial institutions that provide credit and financial services to underserved markets and populations that are certified by the Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) which provides funds to CDFIs through various programs.  Section 1206 would establish limits on a CDFI’s small dollar loan program supported by the CDFI Fund, including that the loans may not exceed $2500, must be repayable in installments, and have no prepayment penalty.

Senator Brown was among a group of U.S. Senators who sent a letter to Director Cordray in June 2015 urging him “to issue the strongest possible [payday lending] rules to end the damaging effects of predatory lending.”

Title XII also authorizes a program intended to expand access of low- and moderate-income individuals to the mainstream  banking system.  Under Section 1204, the Treasury Department can provide grants and other financial  support to promote initiatives designed to enable such individuals to establish accounts in federally-insured depository institutions.

The CFPB has issued its November 2015 complaint report, the fifth in its new series of monthly complaint reports.  The new report highlights bank account or service complaints and complaints from consumers in Connecticut and the Hartford metro area.

General findings include the following:

  • As of November 1, 2015, the CFPB handled approximately 749,000 complaints nationally, including approximately 23,300 complaints in October 2015.  For October 2015, debt collection continued to be the most complained-about financial product or service, representing about 28 percent of complaints submitted.  (The CFPB stated that this was the 26th consecutive month in which it handled more complaints about debt collection than about any other type of complaint.)  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 66 percent of the complaints submitted in October 2015.
  • Complaints about prepaid cards showed the greatest percentage increase, increasing about 193 percent from the same time last year (August to October 2014 compared with August to October 2015).  (In its Fall 2015 rulemaking agenda, the CFPB estimated that it expects to issue a final prepaid card rule in March 2016.)
  • Payday loan complaints showed the greatest percentage decrease, decreasing 20 percent from the same time last year (August to October 2014 compared with August to October 2015).  Complaints during those periods decreased from 589 complaints in 2014 to 469 complaints in 2015.  (Payday loan complaints also showed the greatest percentage decrease in the October 2015 complaint report.)
  • Idaho, Nebraska and Arkansas experienced the greatest complaint volume increases from the same time last year (August to October 2014 compared with August to October 2015).  The volume of complaints from Idaho, Nebraska and Arkansas increased by, respectively, 66, 41 and 42 percent.  The states with the greatest complaint volume decreases from the same time last year (August to October 2014 compared with August to October 2015) were Delaware, Alaska and Florida , with decreases of, respectively, 5, 12 and 1 percent.

Findings regarding bank account and services complaints include the following:

  • As of October 1, 2015, the CFPB handled approximately 73,300 bank account and service complaints, representing about 10 percent of total complaints.
  • Problems with account management (such as issues relating to opening and closing  accounts and dispute resolution) and problems with deposits and withdrawals (such as issues relating to restricted access to funds, fund holds, and deposit cutoff times) were the most common complaints.
  • Other issues raised in complaints included difficulty in avoiding fees, such as monthly account management fees due to low balances, debit card replacement fees, check cashing, overdraft fees, excessive withdrawal fees, dormant account fees and ATM withdrawal fees.

Findings regarding complaints from consumers in Connecticut and the Hartford metro area include the following:

  • As of October 1, 2015, approximately 8,300 complaints were submitted by Connecticut consumers, of which about 2,500 were from Hartford consumers.
  • Mortgages were the most-complained-about product, with mortgage-related complaints representing 28 percent of the complaints submitted by Connecticut consumers.
  • Debt collection and credit cards were, respectively, the second and third most-complained-about financial products by Connecticut consumers.