FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Whether Corporate Sponsor Participating in Bank Tie-In Promotion is a Deposit Broker
June 24, 1993
Valerie J. Best, Counsel
This is in response to your letters concerning the registration requirements imposed by the brokered deposit statutes (12 U.S.C. §§ 1831f and 1831f--1) as implemented by section 337.6 of the FDIC's Rules and Regulations (12 C.F.R. § 337.6). You write that, from time to time, *** (the "Bank") participates with corporate sponsors in various tie-in promotions. You advise that under these programs the corporate sponsor will endorse and promote to its customers the [tuition-linked] CD in exchange for the Bank's agreement to make the [tuition-linked] CD available to its customers at a discounted price. As an example you cite ***.
*** participated in a tie-in promotion with the Bank in 1990 and 1991. Members of the *** frequent flier program were able to exchange frequent flier miles for discounts on the [tuition-linked] CD. The Bank did not directly pay the *** any commission on deposits generated as a result of the tie-in promotion. It is my understanding that the only benefit *** derived from its relationship with the Bank was that *** retrieved frequent flier miles previously granted to its customers. You ask whether *** or other corporate sponsors participating in similar tie-in promotions would be "deposit brokers" within the meaning of the FDIC's brokered deposit regulations.
Based upon the information provided in your letters, it is my view that *** would not be a deposit broker. It appears that *** qualifies as an "Affinity Group" under the criteria outlined in our letter dated June 17, 1993 to the Bank. With regard to other corporate sponsors, however, I do not have sufficient facts to make a determination. Among other things, it is not clear if the other corporate programs are coupon-redemption programs. The guidelines set forth in our June 17, 1993 letter to the Bank should prove helpful to you in analyzing this issue, however.
As outlined in our June 17th letter, the FDIC recently considered whether certain "Affinity Groups" that endorse the deposit products of a particular insured bank are deposit brokers. Based upon the particular facts presented in that case, we concluded that the Affinity Groups were not deposit brokers. The relevant facts underlying our conclusion are listed in the June 17th letter. When considered together, we believed these facts tended to support the conclusion that the Affinity Groups are neither "engaged in the business of placing deposits" nor "facilitating the placement of deposits" with the bank, as contemplated by the statute. By contract, each Affinity Group permitted the bank to use its name to market the bank's deposit products to its members with its endorsement. Such activity, we believed, and the nature of the particular arrangement can reasonably be characterized as passive and indirect and, therefore, outside the scope of the brokered deposit statute and regulations.
Based upon my understanding of the facts in this case, it appears that *** satisfies the criteria listed in the June 17th letter. It is true that *** markets the CDs, but this marketing is done only in conjunction with the coupon-redemption program.
In our June 17th letter we expressed the view that the financial planners and brokerage houses you described were "deposit brokers." You ask if this would continue to be our view if the financial planners and brokerage houses did not receive any commissions from the Bank. The answer to your question is yes.
It is not unusual for deposit brokers to be compensated indirectly. For example, a deposit broker could take a cut of the interest that would otherwise be paid to the depositor. Alternatively, a deposit broker could steer its customers to a parent holding company or affiliate and derive compensation through a quid pro quo arrangement with the parent or affiliate. If we exempted commercial enterprises from the statutory restrictions whenever they arranged to be compensated indirectly, the statutory restrictions could be easily circumvented. Consequently, the FDIC has previously taken the position that a commercial enterprise that facilitates the placement of third-party deposits with insured depository institutions for livelihood or profit is a "deposit broker" even if the commercial enterprise is indirectly compensated.
I trust this is fully responsive to your inquiry.