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4000 - Advisory Opinions

Question regarding whether Deposits placed through a Bank Program to allocate Charitable Donations to local Community Organizations would be considered Brokered Deposits.

FDIC-17--01 October 25, 2016 Vivek V. Khare

This is in response to your letter seeking clarification on the information presented in the "Frequently Asked Questions" attached to Financial Institution Letter-2--2015 ("Guidance on Identifying, Accepting and Reporting Brokered Deposits"). Specifically, you seek an opinion on whether certain deposits at [ABC Bank] (the "bank" or "[ABC]") should be reported as brokered deposits on the bank's Call Report.

For the reasons explained below, and under the particular facts and circumstances as described,1 the deposits underlying the "program" would not be brokered deposits because we do not consider the nonprofit groups in this case that participate in the bank's program to be deposit brokers under the relevant statute.2

Overview of the Program

In [ ], [ABC] began offering a program, whereby eligible nonprofit organizations ("NPOs") can receive charitable donations based on the number of supporters who designate the NPO's account at [ABC].3 When an NPO opens a deposit account, joins the program, and meets all of the requirements detailed below, then the bank makes a charitable donation to the NPO's deposit account on a quarterly basis.4

The program is entirely at the bank's discretion and can be modified or canceled at any time, in whole or in part. In operating the program, the bank has represented that it has no contractual obligation to the NPOs or supporters.

To be eligible for the program, NPOs must have an address in one of [y] counties in [state where the bank operates] and open or have a checking or savings account at the bank. Once the account is established, the NPO must complete a [program enrollment form] and provide documentation confirming that the NPO is a tax exempt nonprofit entity.

The bank lists the actively participating NPOs on its website and also posts a list of the NPOs at each bank branch location. Each bank branch also advertises the program in its lobby areas and makes [forms] available to the public to allow both new and existing bank customers to designate any eligible NPO, whether or not they have any other affiliation with that NPO. NPOs may also distribute account forms to their members and pass along advertising materials, consisting of a "welcome packet," that the bank provides to each approved NPO.5 As mentioned earlier, supporters may include either new or existing bank customers (individuals or businesses) who wish to participate in designating NPOs.

In order for an approved NPO to receive quarterly donations, the program requires that [x] supporters designate an NPO's account at the bank to indicate their support.6 Once an NPO reaches the [x] supporter threshold, it then begins to receive donations from the bank, on a quarterly basis, based on the average balance maintained by the supporters. The accrued donations depend on the type of banking relationship each supporter has with the bank. Supporters who designate an NPO's account do not receive any monetary benefit from the bank for their designation.

Supporters may designate as many accounts or new loans as they wish to be included in the program and can designate both newly-opened accounts, and existing deposit accounts already at the bank. Supporters can change their designation and designate a different NPO every quarter. Because the bank does not report individual data to the NPO, NPOs are typically unaware of who designates their account at the bank. Generally, the bank itself is unable to distinguish between supporters who were referred by a particular NPO and those supporters who designate their account with the bank directly or change their support from one NPO to another. Regardless of whether a supporter was referred by a particular NPO or not, the bank will make charitable donations to any NPO account with at least [x] designations. In addition, the bank treats all designations equally, and does not provide preferential treatment (such as a monetary benefit) based upon whether the designated account is a pre-existing account or a new account, or whether the supporter is a member of the NPO they choose to designate.7

Applicable Law

Section 29 of the Federal Deposit Insurance Act defines "deposit broker" as "any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions. . . ."8 This definition of "deposit broker" is subject to statutory exceptions.9

Analysis of the Program

As indicated in your letter, supporters may designate either pre-existing accounts or new accounts. Pre-existing accounts are already at the bank, and therefore do not represent new funds being deposited at the bank. New accounts represent new funds deposited at the bank. Significantly, among other factors, new deposit accounts are treated the same as pre-existing deposit accounts for purposes of calculating the NPO's quarterly donation amount and when determining whether the NPO has met the [x] supporter threshold.

Moreover, as represented by the bank, staff understands that the NPO's advertising of the program may not necessarily connect the bank with depositors. In other words, the degree of involvement by the NPO in linking depositors with the Bank is tenuous. It is possible that the designating of accounts for a particular NPO is the result of a customer walking into a bank branch or browsing the bank's website and noticing the bank's own marketing materials for the program. Further, it is foreseeable that an NPO's designated accounts can be attributed to bank customers who may have received advertising materials from one NPO, but then switched their designation to another NPO.

In any of these scenarios above, the marketing efforts of a particular NPO in distributing program materials to its members may have little to no relation to accounts being designated and therefore little to no relation to NPOs receiving charitable donations. Because of the tenuous connection between NPOs and the new accounts at the bank, taken together in this specific context with the other distinctive facts of this matter listed below, staff believes that the deposits underlying the program should not be considered brokered deposits:

(1)  the program is designed to allocate charitable donations in the community;

(2)  the bank treats all designations equally, and does not provide preferential treatment (such as an additional monetary benefit) based upon whether the designated account is a pre-existing account or a new account, or whether the supporter is a member of the NPO they choose to designate;

(3)  the supporters who have designated an NPO have the discretion to remove or change their designation at any time;

(4)  in operating the program, the bank represents that no contractual obligation exists between the NPOs and the bank;

(5)  NPOs are not involved in the physical placement of deposits at the bank;

(6)  NPOs are not provided information on, and are generally unaware of, the supporters who designate their account at the bank; and

(7)  NPOs and their supporters must have an address in the bank's local community (in this case, the [y] counties in which the bank is physically located);

A change in the facts above could lead to a different conclusion. This opinion does not address the status of other deposits currently maintained at [ABC].

The opinions expressed herein represent the views of the Legal Division staff and should be considered advisory in nature. Staff opinions are not binding upon the FDIC or its Board of Directors.

1The elements of this program are unique and do not fit within any existing staff advisory opinions. Go back to Text

2See 12 U.S.C. § 1831f(g)(1). Go back to Text

3Any individual or business that either maintains or opens a deposit account or originates a new loan with the bank has an opportunity to designate and therefore be a "supporter" of an NPO. A supporter does not need to be a member of, or have a prior relationship with, the NPO they wish to designate. Go back to Text

4No opinion is offered on any accounting or tax-related issues. Go back to Text

5The welcome packet includes disclosure information, program flyers with supporter account forms, and program brochures. Go back to Text

6The balance in accounts participating in the program totals approximately [ ]. Pre-existing designated accounts represent approximately [ ] of the program and new accounts represent [ ] of the program. Go back to Text

7For example, a checking account designated by a member of the NPO is treated the same as a checking account designated by a depositor who has no affiliation with the NPO. The same treatment would also apply to accounts designated by pre-existing customers and those accounts designated by new customers. Go back to Text

8See 12 U.S.C. § 1831f(g)(1). Go back to Text

9See 12 U.S.C. § 1831f(g)(2). Go back to Text

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