FDIC Wants to Crack Down on Misleading Representations
To counter an increasing number of potential abuses, the Federal Deposit Insurance Corporation (FDIC) proposed a new rule Thursday giving it more authority to crack down on financial service providers or other individuals and entities that misrepresent FDIC insurance or misuse the agency’s name or logo.
The proposed rule would implement a section of the Federal Deposit Insurance Act that prohibits such misuse and misrepresentations. The FDIC, an independent government agency that insures bank deposits and oversees major financial systems, says the rule would lay out specific processes and procedures for identifying potential violations and enforcing the law against such abuses, which are criminal offenses.
Some of the formal enforcement actions the FDIC could take under the proposed rule include cease-and-desist orders or civil money penalties against individuals or entities.
The agency said it has seen an increasing number of individuals or entities who have abused the use of the FDIC logo or name or misrepresented deposit insurance. To address these violations, the FDIC has historically sent a letter to the responsible parties asking them for corrective action. Between 2019 and 2020, the FDIC said, the number of cases involving non-bank entities with which it reached such informal resolutions over potential violations rose by nearly 55%.
In light of the increase, the agency wants the new rule that would include a similar informal resolution process, as well as more formal enforcement procedures and a point of contact for consumer complaints.
Even though the agency isn’t required by law to propose regulations to implement the section of the Act—called 18(a) (4)—it said it wants to “establish a more transparent process that will benefit all parties and would promote stability and confidence in FDIC deposit insurance and the nation’s financial system.”
The new rule would apply to all FDIC-supervised financial institutions and is open for public comment for 60 days. In the meantime, the agency encourages consumers to use its BankFind tool on its website to determine if an entity is, in fact, FDIC insured.