CUNA Regulatory Comment Call
March 22, 2005
Federal Trade Commission Seeks Comments On Disclosures For Non-Federally Insured Depository Institutions
- The Federal Trade Commission is seeking comments through June 15, 2005, on a proposal regarding disclosures of privately insured credit unions and other non-federally insured institutions regarding their share/deposit insurance coverage.
- Comments should refer to Proposed Rule for FDICIA Disclosures, Matter No. R411014 and may be mailed or delivered to: Federal Trade Commission/Office of the Secretary, Room H-159 (Annex A), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Comments filed in electronic form should be submitted here and following the instructions on the web-based form. To ensure that the Commission considers an electronic comment, it must be filed on the web-based form.
- You can also obtain a copy of the rule here.
In 1991, Congress enacted the Federal Deposit Insurance Corporation Improvements Act which, among other things, added a new section 43 (12 U.S.C. 1831t) that requires depository institutions, including credit unions, that do not have federal deposit insurance to provide certain disclosures to consumers, in periodic statements and advertising, that the institution does not have such insurance and if the institution fails, the federal government does not guarantee depositors will get their money back.
A number of state-chartered credit unions in eight states and Puerto Rico do not have federal deposit insurance and use a private deposit insurer to protect members accounts in lieu of federal insurance. The Puerto Rican government provides deposit insurance for credit unions located there. Also, according to the FTC, there are a small number of state banks and savings associations that do not have federal deposit insurance.
The act requires financial institutions without federal deposit insurance to:
- Include conspicuously in all periodic statements of account, on each signature card, and on each passbook, certificate of deposit, or similar instrument evidencing a deposit a notice that the institution is not federally insured, and that if the institution fails, the federal government does not guarantee that depositors will get their money back;
- Include conspicuously in all advertising and at each place where deposits are normally received a notice that the institution is not federally insured; and
- Receive deposits only from persons who have signed acknowledgments that the institution is not federally insured and that if the institution fails, the federal government does not guarantee that they will get their money back.
The Act directs the FTC to prescribe the manner and content of the required disclosures by regulation or order and permits the Commission to exempt from the disclosure requirements depository institutions within the U.S. that do not receive initial deposits of less than $100,000 from individuals who are U.S. citizens or residents.
The law also contains a provision requiring private insurers to file business plans with appropriate state agencies.
Until recently, the Commissions appropriations authority prohibited the use of FTC resources to enforce the Acts provision regarding private insurance. However, in 1992, FTC notified every then-existing known credit union subject to the statute that, despite the enforcement ban, the requirements of the statute remained in effect.
Currently, FTC has appropriations for certain provisions of the Act including the disclosure provisions. Congress was encouraged to provide the funding for enforcement following a report from the Government Accountability Office (GAO-03-971) that concluded the most apparent impact on consumers may result from credit unions not providing adequate disclosures about the fact that they are not federally insured.
In preparing this proposal, the FTC worked with the FDIC, NCUA, the National Association of State Credit Union Supervisors (NASCUS), and the Puerto Rican authorities.
Proposed Disclosure Requirements and Request for Comment
The proposed rule would apply to non-federally insured credit unions in any State, the District of Columbia, the several territories and possessions of the United States, the Panama Canal Zone, or the Commonwealth of Puerto Rico.
The proposed rule would require credit unions to include conspicuously in all periodic statements and account records an indication that the institution is not federally insured, and that, if the institution fails, the federal government does not guarantee that depositors will get their money back. The proposal provides model language that may be used to satisfy the proposals requirements, and the FTC will evaluate whether disclosures are conspicuous according to well- established FTC law.
Under the proposed rule, a non-federally insured credit union must place a notice that it is not federally insured at each location where it receives funds and in all advertising. Advertising includes, but is not limited to, print, electronic, web page, or broadcast media.
Disclosures at Deposit Locations
The proposed rule requires disclosures at each location where the depository institutions account funds or deposits are normally received including, but not limited to, its principal place of business, its branches, its automated teller machines, and credit union centers, service centers, or branches servicing more than one credit union or institution. The FTC seeks comment on whether this list accurately describes the types of locations where deposits are normally received and whether ATMs are locations where deposits are normally received.
Non-federally insured credit unions would be required to obtain from new and existing depositors signed acknowledgments of the fact that the institution is not federally insured. Credit unions may have already discharged their responsibilities under this requirement for accounts opened before 1994 by means of a series of notifications as specified by the FTC.
Exception for Certain Depository Institutions
As permitted by statute, the FTC would exempt from the disclosure requirements depository institutions that do not receive initial deposits of less than $100,000 from individuals who are citizens or residents of the U.S., other than money received in connection with any draft or similar instrument issued to transmit money.
FTC stated that because it appears unlikely that such institutions are engaged in the business of retail deposits, insurance disclosures do not appear to be necessary for their members. The FTC requests comment on whether such an exemption is appropriate.
Proposed Rules Impact on State Requirements
The proposed rule provides model language that may be used to satisfy its requirement, but does not mandate precise wording for the disclosures.
As FTC notes, in some cases, institutions may be able to comply with the FTC rule and an applicable state disclosure requirement simultaneously. However, if is impossible for a depository institution to comply with applicable state and FTC requirements simultaneously, or if a required state disclosure would frustrate the purpose of the federal requirement by contradicting the meaning or undermining the effectiveness of the FDICIA mandated disclosure, it is likely the state requirement would be preempted by the FTCs rule. The FTC seeks comments on this issue, requirements and how they relate to the FTCs proposed rule.
Regulatory Flexibility Act
The Regulatory Flexibility Act requires that the FTC provide an Initial Regulatory Flexibility Analysis (IRFA) with a proposed rule and a Final Regulatory Flexibility Analysis (FRFA), if any, with the final rule, unless the FTC certifies that the rule will not have a significant economic impact on a substantial number of small entities.
The FTC does not anticipate that the proposed rule will have a significant economic impact on a substantial number of small entities. The Commission recognizes that many of the affected depository institutions may qualify as small businesses under the relevant thresholds (i.e., assets that do not exceed $150 million) and that the economic impact of the proposed rule on a particular small entity could be significant. However, the FTC has taken the view that the proposed rule likely will not have a significant economic impact on a substantial number of small entities.
According to the GAO, in 2003 there were 212 credit unions in the 50 states that choose to use private deposit insurance instead of federal insurance. The FTC estimates that, in addition to this number, there are approximately 150 credit unions in Puerto Rico that do not have federal deposit insurance. In addition, the FTC estimates that there are fewer than 20 banks and savings associations that would be covered by the proposed rule.
Nonetheless, the agency is seeking comments on whether the proposed rule will have a significant impact on a substantial number of small institutions, specific information on the number of entities that would be covered by the proposed rule, the number of covered institutions that are small entities, and the average annual burden for each entity.
QUESTIONS TO CONSIDER:
FTC has developed the following questions below are designed to assist commenters in framing their comments but should not be construed as a limitation on the issues on which comments may be submitted.
- What costs or burdens would the proposed requirements impose, and on whom?
- What regulatory alternatives to the proposed requirements are available that would reduce
the burdens of the proposed requirements, while providing the same benefits?
- Are the proposed advertising disclosure requirements appropriate and consistent with
the purposes of the Act?
- What impact would the proposed rule have on existing state requirements?
- What effect would the proposed rule have on credit unions insured by the Commonwealth
of Puerto Rico?
- Is it appropriate for the FTC to exempt institutions that do not receive initial deposits
of less than $100,000, as proposed? Why or why not?
- Does the list of locations in the proposal accurately describe the types of locations where
deposits are normally received?
- What should be the effective date period for the final requirements (i.e., the number of
days between publication and the effective date of the rule)?
- Other comments?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org
Mary Mitchell Dunn SVP & Associate General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Lilly Thomas Assistant General Counsel (202) 508-6733 email@example.com
Catherine Orr Senior Regulatory Counsel (202) 508-6743 firstname.lastname@example.org