4000 - Advisory Opinions
Insurance Coverage for Consumer Rebate/Annuity Program
FDIC 91-45 May 22, 1991 Mark A. Mellon, Attorney
This is in response to your letter of April 30, 1991 pertaining to the federal deposit insurance of escrow accounts.
Based on your letter and our telephone conversations, it is my understanding that your firm, ***, proposes to create a program through which participants may obtain rebates on goods, services and contributions purchased from vendors which are under contract with ***. The vendors will send the participants' rebates and *** marketing fees to an insured depository institution (the "Bank"). Pursuant to an agreement between the Bank, *** and an insurance company, the bank will hold the participants' funds and *** marketing fees in an escrow account. Marketing fees will be remitted directly to *** from the account. The participants' funds will be remitted by the Bank to an account in another insured depository institution held by the insurance company. At the option of the participants, the insurance company will either send the funds to the participants or sweep them periodically into annuities which the participants have purchased from the insurance company.
You state that *** has ensured that the deposit account records of the Bank will adequately disclose that the Bank holds these funds as an escrow agent on the behalf of *** and the program participants. You also represent that the ownership interests of *** and of the participants in the escrow account funds will be ascertainable either from the deposit account records of the Bank or from the records of *** which has undertaken to maintain such records for the Bank. You wish to ascertain whether separate deposit insurance coverage for the escrow account funds will extend (or "pass through") to the participants and ***'s interests in those funds.
If the deposit account records of the Bank disclose that the Bank escrow account funds are held pursuant to a fiduciary relationship, the details of the relationship and the interests of the other parties in the funds can then be ascertained either from the deposit account records of the Bank or from the records of ***. 12 C.F.R. § 330.4(b). Funds in an escrow account are usually insured on an agency basis to the principals in whatever right and capacity that the funds are held in. 12 C.F.R. § 330.6(a). Since the funds in the Bank escrow account are held by an insured depository institution in a fiduciary capacity, however, they would be separately insured up to $100,000 for each owner or beneficiary represented. 12 C.F.R. § 330.10(a). This would be in addition to the insurance provided for any other deposits of the principals with the Bank even if held in the same right and capacity. This holds true for the funds which are attributable to *** and those which are attributable to the participants.
Once the funds are transferred, however, to the account of the insurance company with another insured institution, separate insurance coverage will no longer be provided because the funds will no longer be held by a depository institution in a fiduciary capacity. They would instead, in the event of an insurance determination, be aggregated with any other deposits in that institution which the principals hold in the same right and capacity and insured up to $100,000. 12 C.F.R. § 330.3(a). It must be noted that the same requirements for pass-through insurance which were enumerated for the Bank escrow account also apply to the insurance company's account. The fact that the funds are held pursuant to a fiduciary relationship must be disclosed in the deposit account records of the insured institution and the details of the relationship and the interests of other parties in the account must be ascertainable either from the deposit account records of the institution or from the records of the insurance company (or from the records of some person or entity hired by the insurance company for that purpose).
I hope that this letter is responsive to your query. Please contact me if you have any questions about this or any other matter.