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Inactive Financial Institution Letters


August 30, 2000

SUBJECT: Proposed Rule on Consumer Protections for Bank Sales of Insurance

The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision (the agencies) have jointly proposed the attached consumer protection regulation concerning retail sales practices of insurance products by a depository institution. The proposed rule would implement Section 305 of the Gramm-Leach-Bliley Act. Comments on the proposal are due by October 5, 2000.

Scope of the Proposed Rule

Section 305 of the Gramm-Leach-Bliley Act requires the agencies to jointly prescribe consumer protection regulations that apply to retail sales practices, solicitations, advertising, or offers of insurance and annuity products. The proposal addresses sales activities conducted by a depository institution or by any person at an office of the institution, and extends to sales activities conducted on behalf of the institution in which:

  • The person represents to a consumer that the transaction is on behalf of the institution;
  • Commissions or fees resulting from a sale of an insurance product or annuity are received in whole or in part by the institution as a result of cross-marketing or referrals by the depository institution or affiliate;
  • Documents evidencing the transaction identify or refer to the institution or use its corporate logo or corporate name; or
  • The transaction takes place at an off-premises site, such as a kiosk, that identifies or refers to the institution or uses its corporate logo or corporate name.

Disclosure Requirements

Under the proposed rule, a depository institution is required to make disclosures in connection with the sale of an insurance or annuity product both orally and in writing. A written acknowledgment must be obtained from the consumer that the disclosures were received. The proposed rule allows for the electronic distribution of disclosures and delivery of acknowledgments, provided certain conditions are met.

The disclosures that depository institutions are required to make under the proposed rule are:

  • The insurance product or annuity is not a deposit or other obligation of, or guaranteed by, the depository institution or (if applicable) its affiliate;
  • The insurance product or annuity is not insured by the FDIC or any other agency of the United States, the depository institution or (if applicable) its affiliate;
  • In the case of an insurance product or annuity that involves an investment risk, there is investment risk associated with the product, including the possible loss of value; and
  • The depository institution may not condition an extension of credit on either:
    • The consumer's purchase of an insurance product or annuity from the depository institution or any of its affiliates, or
    • The consumer's agreement not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from another entity.
Other Provisions

The proposed rule also establishes other requirements, including the following:

  • Sales of insurance and annuities must be kept, to the extent practicable, physically segregated from the routine deposit-taking activities of the bank.
  • Sales professionals must be properly licensed and qualified to offer and sell the insurance and annuity products.
  • Referral fees are limited to a one-time nominal fixed fee that is not dependent upon whether the referral results in a transaction.
Consumer Grievance Process

Under the proposed rule, any consumer who believes that a depository institution or any other person working on behalf of the institution has violated the requirements set forth in this proposal should contact the FDIC's Division of Compliance and Consumer Affairs. The other banking and thrift agencies will refer complaints to similar offices within their organizations.

For more information, please contact Keith A. Ligon (202-898-3618) in the FDIC's Division of Supervision or Michael B. Phillips (202-898-3581) in the FDIC's Legal Division.

  James L. Sexton

Attachment: Federal Register, August 21, 2000, pages 50882-50902

Distribution: FDIC-Supervised Banks (Commercial and Savings)

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

Last Updated 03/06/2008

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