WASHINGTON–The Consumer Financial Protection Bureau (CFPB) has released an enforcement memorandum designed to prohibit practices on claims about FDIC insurance, saying the “issue has taken on renewed importance with the emergence of various crypto assets and the risks posed to consumers if they are lured to these or other financial products or services through misrepresentations or false advertising.
Specifically, the Bureau said, “firms cannot misuse the name or logo of the FDIC or make deceptive representations about deposit insurance.”
“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 Bureau noted 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 CFPB said.
Guidance Provided
The Consumer Financial Protection Circular released by the CFPB also 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.
The Specifics
Specifically, the CFPB said its 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.”
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