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4000 - Advisory Opinions

Advertisement of "FDIC Insured" CDs by Deposit Brokers


March 15, 1999

Marc. J. Goldstrom, Counsel

It has been brought to our attention that your firm has advertised certificates of deposit ("CDs") containing the statement "FDIC insured." A copy of one such advertisement is enclosed. We would like to take this opportunity apprise you of certain legal requirements pertaining to the solicitation of such deposits.

Because you facilitate the placement of deposits of third parties with insured depository institutions, you appear to be a "deposit broker" as that term is defined in section 29(g) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. § 1831f(g)). Deposit brokers are required to register with the FDIC before they may solicit or place deposits with an insured depository institution. See 12 C.F.R. § 337.6(h). Our records indicate that your firm has not complied with this requirement. The required notice must be in letter form and should describe the history, nature and volume of its deposit brokerage operations, including the sources and placements of such funds. The notice should be submitted to: FDIC, Office of Specialty Examinations and Financial Reporting, Division of Supervision, 550 17th Street, NW, Washington, D.C. 20429. If you have any questions on this point, please contact Vincent M. Filippini at (202) 898--6863.

Also, as a "deposit broker" you are subject to the Truth in Savings Act ("TISA") (12 U.S.C. §§ 4302(a) and 4313(5)) and Regulation DD issued by the Board of Governors of the Federal Reserve System (12 CFR Part 230). The regulation includes the following provision:

If an advertisement states a rate of return, it shall state the rate as an "annual percentage yield" using that term. The abbreviation "APY" may be used provided the term "annual percentage yield" is stated at least once in the advertisement.) The advertisement shall not state any other rate, except that the "interstate rate," using that term, may be stated in conjunction with, but not more conspicuously than, the annual percentage yield to which it relates.
12 CFR § 230.8(b). In accordance with this regulation please ensure that future advertisements state the rate of return as an "annual percentage yield," rather than "YTM."

Finally, the statement "FDIC insured" and its placement in the enclosed advertisement may mislead consumers into believing that your firm itself is FDIC insured. In order to avoid any further confusion by members of the general public, please either remove this statement from future advertisements in any medium, or amend such advertisements to clarify that the CDs are FDIC insured, not your firm.

Within 15 days of the date of this letter, please inform us whether you have registered as a deposit broker and let us know the actions you intend to take to alleviate the potential for confusion and to comply with TISA and Regulation DD. If you have any questions or concerns, please fee free to contact me at (202) 898--8807. Thank you for your cooperation.

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