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FDIC Final Rule And Its Impact On Bank Partnerships – Financial Services



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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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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