FDIC Issues Final Rule on False Advertising, Misrepresentation of Insured Status, and Misuse of the FDIC’s Name or Logo

On May 17, 2022, the Federal Deposit Insurance Corporation (FDIC) announced its adoption of a final rule implementing Section 18(a)(4) of the Federal Deposit Insurance Act, which prohibits  any person from misusing the FDIC’s name or logo to misrepresent their deposit insurance status.  The final rule establishes the process by which the FDIC will identify and investigate conduct that may violate the statute, the standards under which such conduct will be evaluated, and the procedures the FDIC will follow when taking enforcement actions to address violations.

Martin J. Gruenberg, acting chairman of the FDIC Board of Directors, explained in a statement that, “[h]istorically, while the FDIC has routinely acted under the statute to protect consumers by limiting the use of the FDIC’s name, seal, and logo to insured depository institutions and preventing false and misleading representations about deposit insurance, the FDIC has never issued specific regulations addressing false representations related to deposit insurance or the misuse of the FDIC’s name or logo.”  However clarity regarding the FDIC’s approach to enforcing the statute is necessary given that, per the text of the new rule itself, “[t]he FDIC has observed an increasing number of instances where financial services providers or other entities or individuals have misused the FDIC’s name or logo or have made false or misleading representations about deposit insurance.”  For example, Gruenberg explained, “the FDIC has seen a number of instances where scammers have made false or misleading assertions that their products offer the protections afforded by FDIC insurance.  We have also seen circumstances where certain non-banks were making unsubstantiated claims about deposit insurance.”  Gruenberg added that “[t]hese practices not only harm those who are targeted with the false promise of deposit insurance, but, if left unchecked, could also undermine confidence in the FDIC, FDIC-insured banks, and the U.S. banking system.”

Per the new rule, an entity may not, among other things, use any term “that may represent or imply that any deposit, liability, obligation certificate, or share is insured or guaranteed by the FDIC” in any advertisement of an uninsured financial product “without a clear, conspicuous, and prominent disclaimer that the products being offered are not FDIC insured or guaranteed.”  The new rule also creates a point-of-contact for any person who wishes to file a complaint regarding a potential violation of the rule, and states that the FDIC may choose to handle the complaint matter informally or formally, either by issuing an advisory letter requesting that the potential violator take certain action, or by initiating an enforcement action.