June 29, 2022

Volume XII, Number 180

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FDIC and CFPB Take Action to Protect Against Misrepresentations about FDIC Insured Status and Misuse of Name and Logo

On May 17, the FDIC and the CFPB took parallel actions to combat the misuse of  the name or logo of the FDIC and deceptive representations about deposit insurance.  The FDIC approved a final rule implementing its statutory authority to prohibit any person or organization from making misrepresentations about FDIC deposit insurance or misusing the FDIC’s name or logo.  The CFPB followed suit by releasing Consumer Financial Protection Circular 2022-02 providing that company’s likely violate the CFPA’s prohibition on deception acts or practices if they misuse the name or logo of the FDIC or engage in false advertising or make misrepresentations to consumers about deposit insurance, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly.

The Circular emphasizes that:  (i) misrepresenting the FDIC logo or name will typically be a material misrepresentation; (ii) claims that crypto-related 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; and (iii) misuse of the FDIC name or logo harms honest companies.

In his support of the FDIC’s final rule, CFPB Director Rohit Chopra stated that “FDIC staff has noted an uptick in potential violations in recent years. We are especially concerned about potential misconduct involving novel technologies, including so-called stablecoins and other crypto-assets. While new technologies may yield significant benefits for households, workers, and small businesses, they nonetheless pose risks to consumers who may be baited by misrepresentations or false advertisements about deposit insurance.”  Acting Comptroller of the Currency Michael J. Hsu stated that the final rule is “timely in light of changes in the marketplace, technological developments, and rapidly evolving consumer behaviors. It is especially important in light of the growth of nonbank crypto firms and fintechs and their relationships with banks.”

Putting It Into Practice:  Through these latest actions, the regulators are specifically speaking to crypto firms and FinTechs that have seen significant growth over recent years.  These firms should take steps to address situations in which they make unsubstantiated claims about the availability of deposit insurance.  For instance, FinTechs should make sure to explain that any FDIC insurance a customer might receive is through the insured depository institution that the company partners with, not through the FinTech itself.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 140
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.

At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,...

202-747-2194
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