The FDIC’s Proposed Rule Banning Non-Bank Entities & Private Individuals from Misleading Representations About Deposit Insurance

Last month, the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking and request for information entitled “False Advertising, Misrepresentation of Insured Status and Misuse of the FDIC’s Name or Logo.” 

The FDIC is statutorily vested to ban misleading advertising and ensure that the use of its intellectual property is limited to depository institutions that it in fact insures. It is a federal criminal offense to falsely imply that a financial product is FDIC-insured.

The proposed rule would affect non-bank entities and private individuals engaged in misuse of the FDIC’s name or logo or otherwise misleading the public about having deposit insurance. Among the instances of the misuse are those “where false statements are made regarding the existence or extent of deposit insurance associated with a product, as well as instances where material information is omitted from representation.” If enacted, the rule will also apply to those who aid and abet the direct violators. 

The proposed rule enables the public to submit complaints of the potential misleading representations to the FDIC or inquire about such representations with the FDIC’s Information and Support Center. 

The FDIC’s general counsel may commence a formal investigation of such a complaint or inquiry—which, in some cases, may end in publicizing the investigation. Or the FDIC may opt to first send an advisory letter explaining its concerns and offering the recipient an opportunity to clarify its use of the FDIC’s logo or name and remedy the perceived violation. If the recipient fails to take the opportunity, the FDIC can bring an enforcement action in the federal judicial district of the respondent’s residence. 

The FDIC invites comments on all aspects of the rule—especially its scope and procedures—until July 9, 2021.

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