FDIC takes parallel action to combat misrepresentations
The Consumer Financial Protection Bureau (CFPB) released an enforcement memorandum today that addresses prohibited practices on claims about Federal Deposit Insurance Corporation (FDIC) insurance. Specifically, firms cannot misuse the name or logo of the FDIC or make deceptive representations about deposit insurance. The issue has taken on renewed importance with the emergence of financial technologies – such as crypto-assets, including stablecoins – and the risks posed to consumers if they are lured to these or other financial products or services through misrepresentations or false advertising.
“People know and trust the FDIC name and logo, and firms must not prey on that trust by making deceptive representations about deposit insurance,” said CFPB Director Rohit Chopra. “Companies undermine competition, erode confidence in the deposit insurance system, and threaten our hard-earned savings when they engage in false marketing or advertising.”
The Consumer Financial Protection Act prohibits deceptive acts and practices, including deceptive representations involving the name or logo of the FDIC or deposit insurance, by covered firms. Deposit insurance has long been a means to promote confidence in the banking system, and misrepresentation of those protections undermines consumer confidence and market competition. The most common form of deposit insurance is administered by the FDIC. Currently, the FDIC insures deposits at FDIC-insured banks and savings associations up to $250,000 per depositor, per FDIC-insured bank, for each account ownership category.
The Consumer Financial Protection Circular released today provides guidance to consumer protection enforcers that covered firms likely violate the Consumer Financial Protection Act’s prohibition on deception if they misuse the name or logo of the FDIC or engage in false advertising or make material misrepresentations to the public about deposit insurance, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly. The Consumer Financial Protection Act is enforced by the CFPB, banking regulators, and the states.
Specifically, the Circular emphasizes that:
- Misrepresenting the FDIC logo or name will typically be a material misrepresentation.Material misrepresentations are deceptive practices in violation of the Consumer Financial Protection Act. Representations made by covered firms to consumers about FDIC insurance will typically be material. The misuse of the name or logo of the FDIC or engagement in false advertising or making misrepresentations to consumers about deposit insurance, regardless of whether such conduct is engaged in knowingly, is likely deceptive.
- Misrepresentation or misuse of the FDIC name or logo harms customers and puts them at significant risk of unexpected losses. Customers can be at risk of loss if they discover their assets are not insured during a time of financial distress. Because of their relatively recent entrance into the consumer marketplace, emerging financial products and services–such as digital assets, including crypto-assets–may present particularly acute risks to consumers. Claims that financial products or services are “regulated” by the FDIC or “insured” or “eligible for” FDIC insurance are likely deceptive if those claims expressly or implicitly indicate that the product or service is FDIC-insured when that is not in fact the case.
- Misuse of the FDIC name or logo harms honest companies. A covered firm deceptively advertising that its products or services are FDIC-insured may convince individuals to purchase that firm’s products or services when the individuals may have otherwise selected similar products or services from one of the firm’s competitors engaged in honest advertising and marketing.
The Consumer Financial Protection Circular was issued in connection with the FDIC’s adoption of a regulation implementing a statutory provision that prohibits any person or organization from engaging in false advertising or misusing the name or logo of the FDIC and from making knowing misrepresentations about the extent or manner of FDIC deposit insurance. The CFPB will exercise its authorities to ensure the public is protected from risks and harms that arise when firms deceptively use the FDIC logo or name or make deceptive misrepresentations about deposit insurance, regardless of whether those misrepresentations are made knowingly.
Read the Statement of CFPB Director Chopra, Member, FDIC Board of Directors, on the Final Rule Regarding False Advertising, Misrepresentations of Insured Status, and Misuse of the FDIC’s Name or Logo.
Consumers can submit complaints about deposit products, or other consumer financial products or services, by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).