On December 20, 2023, the Federal Deposit Insurance Corporation (“FDIC”) amended its advertising rules for the second time in as many years. The amendments apply to both insured depository institutions (“IDIs”) and intermediaries, such as broker-dealers offering brokered CDs and sweep programs, banks and other entities placing customer funds through bank networks, and FinTechs such as so-called “neobanks” (“Intermediaries”).
The amendments require changes in what Intermediaries communicate to customers in connection with offering or soliciting insured deposit products. Intermediaries should carefully review all communications used to solicit deposits, including written disclosure documents, to ensure compliance with the regulation.
The amended regulations (the “Final Rule”), first proposed in December 2022, were adopted on December 20, 2023, and become effective on April 1, 2024, with an “extended compliance date” of January 1, 2025.1
The most important components of the Final Rule as they apply to Intermediaries are:
- Intermediaries (other than IDI’s) making any statement about FDIC insurance must “clearly and conspicuously” disclose that they are not FDIC-insured.
- Intermediaries relying on pass-through deposit insurance for customer deposits must “clearly and conspicuously” disclose that pass-through insurance is subject to conditions.
- Intermediaries must “clearly and conspicuously” identify all IDIs into which customer deposits may be placed.
The Final Rule applies to “advertisements,” which are broadly defined as commercial messages, in any medium, that are designed to attract public attention or patronage to a product, business, or service. Note that the Final Rule, unlike disclosure rules such as Truth in Savings and Truth in Lending, is not limited to consumers and that statements made via e-mail, text or on a website, as well as in a telephone conversation, are covered.
Misleading Statements on Deposit Insurance
The Final Rule provides that it is a “material omission” for any person to fail to “clearly and conspicuously” disclose, in connection with making statements regarding deposit insurance, that a non-bank is not an FDIC–insured institution and that the FDIC’s deposit insurance coverage only protects against the failure of an FDIC–insured depository institution.
While the Final Rule does not prohibit non-banks from using the words “banking” or “bank account,” when a non-bank does so, it must disclose that the non-bank is not FDIC-insured and that only IDIs into which funds are deposited are FDIC-insured.
Pass-Through Insurance Conditions
The Final Rule provides that it is a “material omission” for any person to fail to “clearly and conspicuously” disclose in connection with making statements regarding pass-through insurance, that certain conditions must be satisfied for pass–through deposit insurance coverage to apply.
For deposits placed through agency relationships (including brokered CDs, broker-dealer sweep programs, neobank arrangements, bank networks, HSA arrangements, and any number of other arrangements in the market), the Final Rule does not require disclosure of each specific condition required to ensure that FDIC insurance passes through the agent; “simply referencing that conditions must be satisfied is sufficient.” Some extant disclosure documents in the market may currently satisfy this requirement, though many customer disclosures will need additional language.
The Final Rule provides that it is a “material omission” for any person to fail to “clearly and conspicuously” disclose the IDIs with which the person has a direct or indirect business relationship for the placement of deposits and into which the customer’s deposits may be placed.
Many intermediaries are familiar with the “bank list” requirement set forth in the FDIC’s 2022 rulemaking and have a policy of providing a link to a website listing the current IDIs into which a customer’s funds may be deposited through a deposit placement arrangement. The Final Rule adds to the existing obligation the requirement to “clearly and conspicuously” list the banks.
The FDIC permits links to a website to satisfy this requirement but does not provide any guidance about what “clearly and conspicuously” means other than to reference guidance published by the Federal Trade Commission (“FTC”) on .com Disclosures (the “FTC Guidance”). The FTC Guidance provides that to evaluate whether a particular disclosure is clear and conspicuous, one should consider:
- The placement of the disclosure in the advertisement and its proximity to the claim it is qualifying;
- The prominence of the disclosure;
- Whether the disclosure is unavoidable;
- The extent to which items in other parts of the advertisement might distract attention from the disclosure;
- Whether the disclosure needs to be repeated several times, in order to be effectively communicated or because consumers may enter the site at different locations or travel through the site on paths that cause them to miss the disclosure; and
- Whether the language of the disclosure is understandable to the intended audience.
Neither the FDIC nor the FTC have provided guidance on how a website link would be provided in an oral communication that qualifies as an “advertisement.”