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CUNA Regulatory Comment Call

March 23, 2009

EXECUTIVE SUMMARY

• The Federal Trade Commission (FTC) issued a proposed rule in 2005 to implement provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) that require disclosures for financial institutions that do not have federal deposit or share insurance. This proposal was never finalized.
• In 2006, Congress enacted the Financial Services Regulatory Relief Act of 2006 (FSRRA), which amended the FDICIA requirements and addressed many of the concerns that were raised in comments to the FTC in response to the 2005 proposed rule.
• The FTC has now issued a new proposed rule to incorporate the changes in the FSRRA.
• Comments on the proposed rule are due by June 5, 2009.

Please submit your comments to CUNA by May 26, 2009. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the proposed rule or you may access it here.

BACKGROUND

FDICIA imposes disclosure requirements for financial institutions that do not provide federal deposit or share insurance. However, Congress prohibited the FTC from spending resources on implementing these requirements until 2003. The FTC then issued a proposed rule in 2005 for these required disclosures, which was never finalized. Click here for CUNA’s Regulatory Comment Call that was issued in 2005, which provides more information about this earlier proposal, and click here for CUNA’s comment letter in response to this proposal.

In general, FIDICA requires non-federally insured financial institutions to disclose that it does not have federal insurance and that the federal government does not guarantee depositors will receive their money if the institution fails. This disclosure must be on periodic statements, signature cards, passbooks, and share certificates. In addition, the institution must disclose that it lacks federal insurance on most advertisements and at deposit windows, principal places of business, and branches.

In 2006, Congress enacted the FSRRA, which amended the FDICIA provisions and addressed many of the concerns raised in comments that were submitted in response to the 2005 proposed rule. The proposed rule now being issued by the FTC incorporates the FSRRA provisions. Although the FTC has not finalized a rule to implement these provisions, non-federally insured institutions are currently required to comply with these statutory disclosure requirements. It is estimated there are about 200 state-chartered credit unions that do not have federal share insurance.

DESCRIPTION OF THE PROPOSED RULE

The FSRRA continues to require financial institutions that lack federal insurance to disclose this fact to consumers. However, the FSRRA amends the prior FDICIA provisions as follows, which are incorporated in the proposed rule:

• The requirements to obtain a signed acknowledgement from depositors that the institution is not federally insured and that the federal government does not guarantee the depositor will receive money if the institution fails have been changed by allowing institutions under certain circumstances to provide notice instead of obtaining the signed acknowledgement. Under these provisions, institutions must obtain signed acknowledgements from anyone who becomes a depositor after October 13, 2006, except for those who become depositors through the conversion or merger of a federally insured institution to a non-federally insured institution. In these merger or conversion situations, the institution may also comply with the disclosure requirement without receiving a signed acknowledgement if it attempts to obtain such acknowledgement, as long as it sends the consumer within 45 days after the merger or conversion a card with the required disclosure, a signature line, and instructions for returning the card to the institution. For those who were depositors as of October 13, 2006, the institution must have either obtained a signed acknowledgement or have made two attempts to obtain the acknowledgement by sending the card in the same manner, as described above.
• Exemptions have been established with regard to the advertising disclosures. Specifically, the disclosure that the institution is not federally insured does not have to be on a sign, document, or other item containing the name of the institution, as long as there is no information about products or services or other information that promotes the institution.
• The disclosures for periodic statements, account records, and at the institution’s locations have been modified by requiring the disclosures on share certificates, instead of on a “similar instrument evidencing a deposit.” The disclosures must also be placed clearly and conspicuously at each station or window place where deposits are received, at each principal place of business, in all branches where the institution accepts deposits or opens accounts (excluding automated teller machines or point of sale terminals), and on the Internet home page. This will require disclosures at credit union servicing centers and shared branches to the extent they have stations or windows “where deposits are normally received.”
• State regulators will now have specific enforcement authority.

The rule will not apply to institutions that do not receive deposits in amounts less than the maximum insurance level, which is currently $250,000. This threshold will change to the extent the maximum insurance level is changed for banks under the Federal Deposit Insurance Act.

The required disclosures must be in a format, type size, and manner that are simple and easy to understand. The proposal does not provide specific requirements or details regarding the size and format of these disclosures.

• What costs and burdens does the proposed rule impose? What modifications should the FTC make to increase benefits for consumers? How would these modifications affect credit unions?
  
  

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• What modifications should be made to decrease burdens on credit unions? How would these impact the costs and benefits for consumers?
  
  

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• The rule provides exceptions for financial institutions that only accept deposits that are no less than the maximum insurance level, based on the level for banks under the Federal Deposit Insurance Act. Is this exception appropriate and do consumers in these situations understand the insurance coverage for these deposits?
  
  

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• The rule does not include specific requirements regarding the size and format of the required disclosures, other than that they be “simple and easy to understand.” Should this rule provide more specific requirements and what should they be?
  
  

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• Other comments?
  
  

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