FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Whether the San Francisco Transitional Housing Fund, a Non-incorporated Entity Organized by a Non-profit, Tax-exempt Charity, is Considered a Deposit Broker
March 2, 1994
Valerie J. Best, Counsel
This letter confirms our telephone conversation of March 1, 1994, and responds to letters from Ms. *** and Mr. *** addressed to the FDIC Office of Compliance and Special Activities concerning the San Francisco Transitional Housing Fund (the "Fund"). The FDIC was asked whether the Fund would be considered a deposit broker. It is my opinion that the Fund would not be a "deposit broker" as that term is defined in 12 U.S.C. 1831f.
Description of the Fund
We understand the facts to be as follows. The Fund was formed by a group of friends and colleagues, all of whom were concerned about the lack of capital available to low-income housing developers. The purpose of the Fund is to increase the availability of low cost loans to non-profit developers of transitional housing for the homeless in San Francisco. The Fund is coordinated by Community Focus, a community problem solving organization, which is a project of the Tides Foundation, a non-profit, tax exempt public charity established in 1976. The Fund is not an incorporated entity. None of the volunteers associated with this project receive any remuneration whatsoever for these activities. The Fund found a sponsor bank, [BANK].
The volunteers and the executive director of the Fund solicit deposits on behalf of [BANK]. Said deposits are placed in interest-bearing accounts for the purpose of stimulating [BANK] to make low interest loans to non-profit developers. [BANK] does not use these deposits for collateral. Rather, it uses the deposits for compensatory balances so that low rates of interest can be offered to the non-profit developers. Mr. *** states that there is no legal or formal connection between the deposits and the funds loaned by [BANK]. The Fund matches [BANK] with suitable non-profit developers. A brochure issued by the Fund states:
Individuals and businesses make 5 year deposits with [BANK] in $1,000 increments. Depositors are fully insured to $100,000 by the FDIC. At the end of the term, the principal will be returned in full to depositors with 2 percent interest compounded annually.
The [BANK] will match the funds on deposit with low-interest loans. With the oversight of the [Fund's] representatives, these funds will be made available to non-profit developers of transitional housing. So over the initial five-year term of the Fund, your investment will help to provide up to 400 living units for people who are now homeless. Meanwhile, your money will remain safely on deposit with the Bank in an insured account.
. . . .
While our rates for CDs may not be competitive, we're paying a tangible dividend. For about a dollar a week . . . you can give the homeless what they need most, a home.
At no point does the Fund hold the deposits. Rather, the Fund sends out deposit forms accompanied by a special notice to earmark accounts for the Fund. The Fund does not earn any commission or like payment for directing such deposits to [BANK].
It is my understanding that [BANK] does not pay a fee, directly or indirectly, for the funds deposited as a result of the Fund's activities. The Fund wishes to establish similar relationships with other banks.
Definition of ``Deposit Broker''
The statutory definition of "deposit broker" is broad. 12 U.S.C. 1831f(g)(1)(A) and (B). The FDIC has interpreted the definition to encompass numerous activities in an effort to discourage the flow of deposits to undercapitalized institutions. In determining whether an entity is a "deposit broker" within the meaning of the statute, we analyze whether it is "engaged in the business" of placing deposits or facilitating the placement of deposits with insured depository institutions. These broad statutory parameters require the FDIC to consider on a case-by-case basis whether an activity is deposit brokering within the meaning and purpose of the statute.
It is my view that the Fund would not be considered a "deposit broker" because it is not engaged in the "business" of facilitating the placement of deposits. In common usage, the term "business" generally refers to employment, occupation, or activity engaged in for gain or livelihood; that which engages the time, attention, labor, and effort of persons as a principal serious concern or interest or for livelihood or profit. It is not necessary for an enterprise to be profitable in its operation to be considered a "business."
The fact that an enterprise is non-profit is not determinative in my view.1 Likewise, the absence of direct compensation is not determinative. It is not unusual for deposit brokers to be compensated indirectly.
The following factors are relevant in determining that the Fund is not a "deposit broker" within the meaning of the statute: (a) The Fund is a not-for-profit, loosely organized group of friends and colleagues working for a charitable cause; (b) The Fund does not have any salaried employees; (c) You noted that the Fund is coordinated by Community Focus, which is a project of the Tides Foundation. I understand that the Tides Foundation has salaried employees on its staff, and that these salaried employees (along with volunteers) make up the Community focus group. These salaried employees advise or otherwise assist the members of the Fund. However, no financial benefit accrues to the Tides Foundation or to the Community Focus group as a direct result of their activities on behalf of the Fund; (d) No financial benefit accrues to the Fund as a direct or indirect result of its activities in conjunction with the deposit-placing program. I understand that the sponsoring Bank may provide free advertising to the Fund, but I do not consider this to be significant; (e) The sponsoring Bank does not pay a fee or any other compensation, directly or indirectly, for the funds deposited as a result of the Fund's activities.
When considered together, I believe these facts tend to support the conclusion that the Fund is not engaged in the "business" of placing deposits.
I trust this is responsive to your inquiry. Please call me at (202) 898-3812 if you have any questions or if I can be of further assistance. Please let *** know how much I appreciated her assistance in trying to resolve this issue.
1We previously considered a corporation organized to invest public funds in insured deposits. FDIC Advisory Opinion 92--91. It was not clear from the information made available to us if that corporation was a nonprofit organization. It was clear, however, that the corporation was paid fees for its activities. Consequently, FDIC staff opined that the corporation was a deposit broker. Go back to Text