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FDIC Enforcement Decisions and Orders |
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Bank ordered to cease and desist from making inaccurate or misleading advertisements that is was paying the highest rates or highest bank rates on deposits in 1976, a leap year, when the bank was not paying the highest rates. The bank calculated its interest payments on the basis of a 365-day year, when 1976 had 366 days. FDIC also ordered that the bank make restitution to its depositors.
[.1] AdvertisingInaccurate or Misleading
[.2] Cease and Desist OrderAffirmative RemedyRestitution
In the Matter of * * *
Pursuant to its authority under Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(b)), the Federal Deposit Insurance Corporation, on October 12, 1978, issued a notice of charges against * * * alleging, inter alia, that Respondent, during the period January 1, 1974 through December 31, 1976 advertised that it was paying the highest rates or highest bank rates on deposits, that interest on deposits was compounded daily, that various effective annual yields based upon at least daily compounding of principal and interest for 365 days using the equivalent of an artificial 360-day year (365/360) were available, but that on or about January 2, 1976, and without providing notice to its depositors, Respondent subtracted one day from the number of calendar days used in com-
{{4-1-90 p.A-15}}pounding dividends in the first quarter of that year on its day-of-deposit to day-of-withdrawal accounts and that during the period January 1 through December 31, 1976, and without providing notice to its depositors, Respondent continued to calculate interest on its time deposit accounts on the same basis as it did during calendar year 1975; contrary to its advertising representations, the Respondent was not paying the highest bank rates or the highest rates, and Respondent thus violated Section 329.8(f) of the FDIC's regulations (12 C.F.R. §329.8(f)). Respondent, by counsel, filed a timely answer, admitting some of the allegations and denying others.
FINDINGS OF FACT AND
The Board of Directors adopts the Findings of Fact and Conclusions of Law, and the basis therefor, contained in the Recommended Decision of the Administrative Law Judge, which is hereby incorporated by reference as a part of this decision, with one exception. Footnote 10 of the Recommended Decision states in essence that the FDIC is required by 15 U.S.C. § 57(a)(f) to prevent unfair or deceptive acts or practices in or affecting commerce by nonmember insured banks. The Board of Directors finds that statutory provision to be superfluous to this proceeding and does not adopt footnote 10.
ORDER
It is ORDERED, that * * * cease and desist from violating Section 329.8 of the Corporation's Rules and Regulations, in particular 329.8(f), 12 C.F.R. 329.8(f), and further take affirmative action as follows:
RECOMMENDED DECISION
1. Respondent * * * Bank is a mutual savings bank organized and existing under the laws of * * *. Respondent was and is an insured State nonmember bank and at all times pertinent hereto was subject to the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) and regulations of the FDIC issued thereunder (12 C.F.R. Part 301 et seq.)
[.1] 3. Use of the fraction 366/360 in determining the time factor in a leap year as permitted by FDIC regulations (12 CFR 329.3(e) and 101(b)) and compounding simple interest at the rates specified in 12 CFR 329.7 (5.25% for other than time deposits) 366 times would have resulted in the highest rates of interest (based on daily compounding) Respondent was legally permitted to pay in 1976.
Discussion
Respondent's defense to this proceeding, reduced to its essentials, is that (i) Respondent paid and computed interest in 1976 exactly as it advertised, (ii) that to pay more than it advertised would have violated * * * law, and (iii) the FDIC regulations which Respondent is accused of violating as applied to Respondent herein are vague and ambiguous and therefore void.
[.2] Violations of FDIC regulations by Respondent having been clearly established, the authority of the Board of Directors to issue a cease and desist order, including a requirement that Respondent take affirmative action to correct the conditions resulting from such practices, appears to be beyond question.14 There would also appear to be no doubt that such an order may include restitution and it is considered that merely requiring Respondent to cease and desist from the violations herein found would not be an adequate remedy.15 Counsel for Respondent alluded to the possibility that Respondent might be ordered to take actions which were prohibitively costly or with which it was otherwise unable to comply and requested that its right to present evidence as to the feasibility of complying with any such order be preserved (232). While counsel for the FDIC might have been more forthright and outlined or explained the affirmative relief they intended to recommend, it is considered, on the other hand, that the possibility of requiring restitution was sufficiently obvious that a claim of surprise would be difficult to accept. The difficulties referred to by Mr. * * * in changing to 366 compoundings after the beginning of the first quarter in 1976 (finding 22), which difficulties would be compounded with the passage of time, need not be minimized. Nevertheless, he did recognize that it was possible for such a change to be accomplished (by working 18 to 20 hours a day) as late as March 15, 1976 (Tr. 136). Mr. * * * testimony regarding computer difficulties is also weakened by his statement that the computer software system, including the program, was obtained within a week or so after being ordered from NCR
Recommendation
It is recommended that the attached order be issued to Respondent.
Order
It is ORDERED, that * * * cease and desist from violating section 329.8 of the Corporation's Rules and Regulations, in particular 329.8(f), 12 CFR 329.8(f), and further take affirmative action as follows: |
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Last Updated 6/6/2003 | legal@fdic.gov |