FDIC Readies Updates to its Sign and Advertising Rules
It could be more interesting than you think
At a meeting next Tuesday the FDIC intends to consider the issuance of a proposed rule that would update its sign and advertising rules. Previously, the FDIC has described the potential changes as intended to “keep pace with how today’s banks offer products/accept deposits and how consumers connect with banks, including through evolving channels.”
Background
Official Sign Requirement
12 CFR 328 establishes rules requiring FDIC-insured banks to display the FDIC’s official sign “at each station or window where insured deposits are usually and normally received in the depository institution's principal place of business and in all its branches.”
By my count it has been more than a decade since I last visited a physical bank branch, and I expect many readers are in a similar position. Nonetheless, you are probably familiar with the sign, even if you didn’t know the specific regulation which requires it.
Advertising Statements
The regulations also set out rules regarding when an FDIC-insured bank must, or must not, include what the FDIC calls the “official advertising statement.”
Again, even if you are not familiar with this specific term for it or familiar with the underlying regulation, you are probably familiar with the statement itself:
Official advertising statement. The official advertising statement shall be in substance as follows: “Member of the Federal Deposit Insurance Corporation.”
Optional short title and symbol. The short title “Member of FDIC” or “Member FDIC,” … may be used by insured depository institutions at their option …
Subject to certain exceptions,1 the general rule is that the statement must be included in “all advertisements that either promote deposit products and services or promote non-specific banking products and services offered by the institution.”
The rule also provides that the “Member FDIC” or similar statement cannot be used in connection with either advertisements (1) “relating solely to non-deposit products” or (2) “relating solely to hybrid products.”2
What if a bank is advertising both deposit products and non-deposit products or hybrid products? The rules require that the bank “segregate the official advertising statement or any similar statement from that portion of the advertisement that relates to the non-deposit products.”
Notably, in 2013 guidance on social media use by banks, the FDIC reminded institutions that the rules described above “apply equally to advertising and other activities conducted via social media as they do in other contexts.”
The 2020 FDIC RFI
The FDIC’s sign and advertising regulations have generally not received a substantive update since the mid-2000s. In February 2020, the FDIC released a request for information on possible updates to the requirements, including “potential technological solutions” that could be included in updated rules to better reflect modern banking practices.
Some of the questions included in the RFI, such as the one below, are not all that exciting.
1. Should the rule continue to require the sign be a minimum size and a specific color? Is this needed to ensure consumers understand “deposit insurance?”
A number of questions from 2020 are actually pretty interesting, though, especially in light of recent controversies involving the nature of certain ties between banks and fintechs.
6. Are FDIC-insured institutions currently displaying a digital representation of the FDIC sign or logo on their websites/mobile apps at account opening? If not, should they do so?
7. Are FDIC-insured institutions currently displaying a digital representation of the FDIC sign or logo on their websites/mobile apps each time a consumer deposits funds? If not, should they do so? […]
11. Can the regulation be better clarified regarding which types of advertising require the inclusion of the official advertising statement? Should some forms of advertising currently subject to the requirement be made exempt? Are there newer forms of advertising that do not now but should include the official advertising statement? […]
13. If a bank is identified in a nonbank's promotion or advertisement for a deposit product or service, should the advertising statement be required, or conversely, should it be prohibited given that the deposit product or service is from an uninsured entity? […]
15. What technological options or other approaches could be utilized to allow consumers to distinguish FDIC-insured banks and savings associations from nonbanks across web and digital channels? What are the benefits and drawbacks of each approach? Is it necessary or desirable for the FDIC to try to “solve” this by rule, or can private sector initiatives better address this issue?
As noted, the RFI was released in early 2020, just before the COVID-19 pandemic reached the United States at full scale. Given the other things on the FDIC’s and bankers’ minds, the agency in April 2020 announced that it was postponing further action on its sign and advertising rules.
The FDIC later re-opened the comment period on the RFI in April 2021.
Separate FDIC Final Rule on Misleading Uses of Name and Logo
Earlier this year, the FDIC released a final rule regarding misleading uses of its name and logo. These regulations are also now found at 12 CFR Part 328, and have been in the news already this year after the FDIC in August issued cease and desist orders to five firms, including FTX US.
Things to Watch in the Proposal
The comment file on the RFI is a little thin, and mostly consists of relatively brief comments from trade associations and then assorted emails from individual bankers with random recommendations. I expect comments on the proposal to be more robust, including from any affected fintechs and from various consumer-focused groups.
As for what banks would like to see, the joint BPI-ABA comment letter suggests that their members are looking for 1) a little more flexibility from the FDIC for banks, 2) a stricter approach from the FDIC for nonbanks and 3) the achievement of the latter while not undermining the former.
For example on point 1):
With respect to mobile applications or online platforms, we suggest that signage only be required on the home screen … It does not seem reasonable to require signage on every screen of a mobile application or every time a mobile deposit is made. When a consumer is making a mobile deposit into their account, they have already been made aware of the FDIC-insured status of their deposits. Additionally, the technological burden placed on the banks to comply with such a rule would be costly relative to the benefit the consumer is deriving—a redundant notification that their deposits are insured.
And on point 2):
[T]he increasing proliferation of partnerships between insured depository institutions and non-bank entities can increase the risk of customer confusion with respect to their understanding of how deposit insurance may be provided. Moreover, as non-insured entities continue to offer products and services that offer similar deposit capabilities, which do not provide for deposit insurance, consumers are increasingly subject to misrepresentation of the availability of deposit insurance and potentially deceptive acts or practices. Therefore, the FDIC should clearly articulate the obligations that non-banks have with respect to offering these types of products and services, whether insured or not, to promote consumer understanding and mitigate the risk of consumer confusion.
And on point 3):
[T]he FDIC should specify that a bank does not have an obligation to oversee the advertising activities of third parties that are outside the scope of the bank/third-party relationship. For example, while a bank may be responsible for overseeing appropriate use of joint marketing materials that reference the bank’s name in cases where a bank and non-bank enter into a partnership, the bank should not be responsible for monitoring and policing the third-party’s advertising activities that are beyond the control of the bank. […]
As a final and more general point, to ensure that banks have the flexibility to develop appropriate solutions to these challenges as technologies evolve, the FDIC should avoid placing new obligations on banks to educate consumers about the risks of transacting with non-banks. Rather, the FDIC, in partnership with the CFPB, should focus its thinking on whether it is appropriate to set standards or expectations on non-banks to ensure that consumers engaging with these non-banks fully understand the uninsured status of their funds.
Next week’s meeting is unlikely to generate as much coverage as key rulemakings planned by the FDIC and the other banking regulators for early next year, such as a Basel III endgame proposal and a final Community Reinvestment Act rule. That is fair enough. But even so, Tuesday’s proposal may be one to keep an eye on.
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Exceptions include, among others, ads “by radio or television, other than display advertisements, which do not exceed thirty (30) seconds in time” and ads “of the type or character that make it impractical to include the official advertising statement, including, but not limited to, promotional items such as calendars, matchbooks, pens, pencils, and key chains.”
According to the regulations, a hybrid product is “a product or service that has both deposit product features and non-deposit product features. A sweep account is an example of a hybrid product.”