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Inactive Financial Institution Letters 

Advertisement Of Membership

FIL-11-97
February 18, 1997

 

TO: CHIEF EXECUTIVE OFFICER
SUBJECT: Proposal to Amend Regulation on Advertisement of Membership (Part 328 of FDIC's Rules and Regulations)

The FDIC Board of Directors on January 21, 1997, approved the attached Notice of Proposed Rulemaking that would amend its regulation "Advertisement of Membership." The FDIC is inviting comment on all aspects of the proposed rule as well as certain alternatives to the proposal discussed in the preamble of the attached Federal Register notice. In addition, the FDIC is seeking comment on issues raised concerning the applicability of this regulation to insured depository institutions that are transmitting information to or conducting business with customers over a computer network, such as the Internet. All comments are due by April 14, 1997.

The proposed rule would:

    consolidate the provisions that require insured institutions to display official signs,

    extend the official advertising statement that is currently required for insured banks to all insured depository institutions,

    streamline the exceptions to the required use of the official advertising statement,

    prohibit the use of the official advertising statement in advertisements concerning nondeposit investment products or similar nondeposit products, and

    specifically delegate authority to approve the translation of the official advertising statement to certain FDIC officials.

One of the more significant proposals concerns the FDIC's official advertising statement "Member of the Federal Deposit Insurance Corporation" or "Member FDIC." Part 328 requires insured banks to include the official advertising statement in all of their advertisements (with certain exceptions). However, there is no equivalent requirement for insured savings associations. In light of the inconsistent treatment of banks and savings associations, the FDIC proposes requiring that savings associations also use the official statement in advertisements. All insured depository institutions would then be required by the rule to include the statement in their advertisements.

Alternatively, the FDIC could achieve consistent treatment of banks and savings associations by eliminating the requirement that insured banks use the official statement in advertisements. With this alternative, all insured depository institutions would be permitted (but not required) to include such a statement if they saw fit. The FDIC is inviting comment on whether the proposed rule, this alternative, or some other alternative would better help customers understand when they are dealing with an FDIC-insured institution and when their funds are FDIC-insured.

The proposed rule would also prohibit an insured depository institution from including the official advertising statement or any similar statement in advertisements relating to nondeposit investment products or similar nondeposit products. In advertisements containing information about both insured deposits and nondeposit investment products (or similar nondeposit products), the information concerning insured deposits would be clearly segregated from the information about nondeposit investment products (or similar nondeposit products) and would contain either the official statement or any similar statement. Alternatives to this proposal include not requiring, or prohibiting, the use of the official statement (or similar statement) in advertisements containing information on both types of products. The FDIC invites comment on the rule as proposed, these alternatives or any other possible approach.

Another alternative to minimize customer confusion as to the insured or non-insured status of the various products offered by insured depository institutions is to require insured depository institutions to make certain disclosures when they advertise nondeposit investment products, such as mutual funds. Specifically, insured depository institutions would be required to disclose that such products are not insured by the FDIC; not deposits or other obligations of, or guaranteed by, the depository institution; and subject to investment risk, including possible loss of the principal amount invested. The FDIC invites comment as to whether codifying these disclosure provisions in part 328 would more effectively minimize customer confusion concerning the insured or non-insured status of the various products offered by insured depository institutions.

The Notice of Proposed Rulemaking also contains a Request for Comment regarding insured depository institutions that are transmitting information to, or conducting business with, existing or potential customers over a computer network such as the Internet. Many financial institutions have established "world wide web sites" on the Internet. This recent proliferation of world wide web sites gives rise to certain issues concerning whether and under what circumstances Part 328 should apply to the Internet or other computer networks. The FDIC is requesting comment on these issues.

For more information about the proposed rule, please contact Marc J. Goldstrom, Counsel in the FDIC's Legal Division, on (202) 898-8807.

William F. Kroener, III
General Counsel

Attachment: Federal Register, Vol. 62, No. 28, pp 6142-6147

Distribution: All Insured Banks and Savings Associations

Note: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, N.W. Room 100, Washington, D.C. 20434 ((703) 562-2200 or 800-276-6003).

Last Updated 07/16/1999 communications@fdic.gov