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4000 - Advisory Opinions

Associations With Which Insured Institution Has Entered Into Marketing Agreements are Subject to Brokered Deposit Registration Requirements


November 10, 1992

Gerald J. Gervino, Senior Attorney

This is in response to your recent letter concerning deposit brokers. You ask if associations with which your client bank has marketing agreements ("associations") are "deposit brokers" as that term is defined in the Federal Deposit Insurance ("FDI") Act. Based upon the information provided, the associations which your client bank has entered marketing agreements are "deposit brokers." Please consider the following.

Activities of the Associations

Your client bank receives deposits almost entirely by mail or by wire transfer. More than 75 percent of your client bank's deposits have been gathered from members of associations and other affinity groups. The bank has entered into financial agreements with various associations. The bank and the associations have agreed to market various credit and deposit products offered by the bank to members of the associations.

The associations endorse the bank's credit and deposit products, cooperate in marketing the products, sell advertising space in their publications to the bank at standard rates, permit the bank to include deposit solicitations in credit mailings and other direct mailings to association members, place poster and brochure racks relating to the bank's credit and deposit products in association offices, and include information about the bank's products in new member kits. The associations do not accept deposits directly on behalf of the bank or process them in any fashion. Deposit applications and funds are mailed by association members directly to the bank.

Each association earns an incentive fee when an association member maintains a credit or deposit relationship with the bank. The association fee is calculated as a percentage of the average daily balances of deposits maintained by the association's members during the calculation period. Incentive fees paid to associations have been less than a tenth of the incentive fees attributable to credit cards. These incentive fees remain only a small percentage of the total revenues of the associations with which the bank has affinity relationships. Most of the associations with which the bank currently has relationships derive their income from association activities which have no relationship to the bank's activities.

In your recent conversation with Scott Magargee of this office, you stated your opinion that the various associations were not "deposit brokers" under § 29 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831f ("§ 29''). This was based upon the exclusion contained in § 29(g)(2)(I). You indicate that Mr. Magargee took a very conservative view of the exclusion by limiting it to some fiduciary activities not available to the bank. Your client has applied for a waiver with our regional office. It has also requested those associations with which it has agreements to submit notices to the FDIC under § 29A of the Federal Deposit Insurance Act, 12 U.S.C. § 1831f-1.

You strongly disagree with the interpretation that you have received informally and ask us to reconsider.

Definition of ``Deposit Broker''

The term "deposit broker" is defined in section 29 of the FDI Act to mean:

(A)  any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties; and

(B)  an agent or trustee who establishes a deposit account to facilitate a business arrangement with an insured depository institution to use the proceeds of the account to fund a prearranged loan.

12 U.S.C. 1831f(g)(1)(A) and (B).

Several exceptions to the definition of "deposit broker" are set out in the statute, most of them concern depositors acting in certain, specifically described, fiduciary relationships (e.g., the trust department of an insured depository institution, the trustee of a pension plan, etc.).1 None of the exceptions appear to apply to your company or its employees.

FDI Act Requirements Applicable to Deposit Brokers

Deposit brokers are prohibited from soliciting or placing any deposit with an insured depository institution unless the deposit broker has provided the FDIC with written notice that it is a deposit broker.2 Further, undercapitalized insured depository institutions are prohibited from accepting funds obtained by or through any deposit broker. Adequately capitalized insured depository institutions are prohibited from accepting funds obtained by or through any deposit broker unless they first obtain a waiver from the FDIC. Well capitalized insured depository institutions, however, may accept such funds without restriction.3


The fact that your company is never in possession of the investor's principal or interest and never acts as trustee or agent for the investor, does not exempt it from the FDI Act requirements applicable to deposit brokers. The key test is whether your company may be said to be "engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions. . . ."4 In other words, the FDI Act covers scenarios where the broker "facilitates the placement" of deposits, as well as scenarios where the broker places deposits in its name as nominee of agent for others. In common usage, the term "facilitate" means "to free from difficulty or impediment; to make easy or less difficult."5 The activities of the associations clearly make it easier for the investor to place its deposits with the bank.

For the most part, the definition of "deposit broker" used in the FDI Act is derived from regulations issued by the FDIC and the Federal Home Loan Bank Board in 1984 that were subsequently overruled as an invalid exercise of authority.6 The term "deposit broker" was broadly defined in those regulations and, likewise, is broadly defined in the statute, because deposit brokering may occur in any one of several ways. In fact, the discussion accompanying the 1984 regulations specifically describes as "deposit brokering" a situation where a broker, acting on its own or at the request of an institution or institutions, solicits deposits from its customers, and the interested customer sends funds directly to the receiving depository institution which has been given notice by the broker of the impending purchase.7 Even where the investor, after having been contacted by an association, calls the bank directly to establish an account, the association would be considered to be a deposit broker because it is "facilitating the placement" of deposits; the broad definition of deposit broker used in the FDI Act encompasses such "match-making" or "finder" activities.

Section 29(g)(2)(I) of our Act grants an exclusion from the definition of "deposit broker" for an agent or nominee whose primary purpose is not the placement of funds with depository institutions. You feel that this exclusion should apply to the associations with which your client bank has contracted. We do not believe that the exclusion is applicable.

Based on the foregoing, the associations and their employees are "deposit brokers" as that term is defined in the FDI Act. As a result, they are subject to the registration requirements imposed by the FDI Act. An association may file a single notice on behalf of all of its employees and/or agents. However, the FDIC reserves the right to require individual information at any time.

If you have any further questions or would like further explanation of our letter, please write or call us at (202) 898-3723.

112 U.S.C. 1831f(g)(2)(C). Go back to Text

212 U.S.C. 1831f-1(a). 57 FR 23933, 23944 (June 5, 1992) (to be codified at 12 C.F.R. 337.6(h)). Go back to Text

312 U.S.C. 1831f. 57 FR 23933 (June 5, 1992) (to be codified at 12 C.F.R. 337.6). Go back to Text

412 U.S.C. 1831f(1)(A) (emphasis added). Go back to Text

5Black's Law Dictionary 591 (6th ed. 1990). Whether or not the activities must be more than merely incidental to the placement of the deposits is not at issue in this case, given the level of activities of your company. Go back to Text

6The brokered deposit amendments to Senate Bill 774 were sponsored by Senator Murkowski. 135 Cong. Rec. S 4266 (daily ed. April 19, 1989) (statement of Sen. Murkowski). Sen. Murkowski had proposed similar legislation to restrict brokered deposits prior to sponsoring the amendment to Senate Bill 774. While introducing these earlier bills, Mr. Murkowski referenced the 1984 regulations and stated that the bills were intended to restore the provisions of the 1984 FDIC and Federal Home Loan Bank Board regulation that was subsequently overruled in Federal court as an invalid exercise of authority. 134 Cong. Rec. S 11456 at 11457 (daily ed. August 10, 1988) and S 115999 at 11600 (daily ed. August 11, 1988) (statements of Sen. Murkowski) and 135 Cong. Rec. S 1418 (daily ed. February 9, 1989) and S 1934 (daily ed. March 1, 1989) (statements of Sen. Murkowski). Go back to Text

748 FR 50339 (Nov. 1, 1983). Go back to Text

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