Posts Tagged ‘FDIC’

FDIC Extends Business Deposit Insurance

Wednesday, April 14th, 2010
FDIC Support Continues

FDIC Support Continues

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) yesterday approved an interim rule to extend the Transaction Account Guarantee (TAG) program to December 31, 2010 with the discretion to further extend the program to year-end 2011, should economic conditions warrant such action. The program, which was set to expire on June 30, 2010, provides customers of participating depositary institutions full coverage on transaction accounts. The program mitigates the risks that banks would risk unnecessary liquidity failures should businesses diversify their banking deposits among multiple institutions to fall below the deposit insurance cap. Often, as payroll dates or other key payables approach, business banking balances temporarily exceed the account maximum for FDIC-provided deposit insurance. As a consequence of the financial crisis of 2008, small businesses had to consider the possibility of a bank failure occurring at the time of a peak deposit, prompting the FDIC to raise its limits for such business transaction accounts.  The extension of this program is expected to continue a stable funding source for banks to secure low-cost, large, locally-sourced deposits. It will also reassure small businesses that they can maintain their existing banking relationships beyond the June 30 expiry date without fear of the loss of FDIC backing.

FDIC’s Cease and Desist Order Re: Small Business Accounts

Tuesday, July 14th, 2009
Bill of Rights for Credit Card Customers

Bill of Rights for Credit Card Customers

The Federal Deposit Insurance Corporation (FDIC)  entered into a settlement with Advanta Bank Corporation in connection with deceptive and unfair practices in violation of the Federal Trade Commission Act. The settlement provides that Advanta agrees to an (fdic-advanta-order) order to cease and desist, to pay a civil penalty in the amount of $150,000 and restitution of approximately $14 million to small businesses that used Advanta’s Cash Back Reward Program and $21 million to those small businesses whose accounts were re-priced. Advanta admitted no wrongdoing in connection with the order.

Advanta’s “Cash Back Reward” program advertised a cash rebate on a percentage of eligible purchases for small business credit card holders. The cash rebates were tiered, the promoted rebates were not available for all purchases and it was effectively impossible to earn the cash back reward payments that were promoted. The FDIC concluded that Advanta’s marketing material was likely to mislead a reasonable customer, that these marketing misrepresentations were material and therefore constituted a pattern of deceptive practices explicitly prohibited by the Federal Trade Commission. 

The FDIC also determined that Advanta had imposed, in an unfair manner, substantial annual percentage rate (APR) increases on the accounts of small business owners who had neither exceeded their credit limits nor were delinquent on their account payments. The FDIC concluded that Advanta had failed to give adequate notice to small business account holders of the increase in APR, had failed to properly notify them of the amount of or the reason for the increase and the means to opt-out and the consequences of opting out. This surreptitious re-pricing caused substantial harm to small business customers, who were kept in the dark as to how to reasonably avert the harm.

I spoke with David Barr of the FDIC and thank him for informing this blog posting. I did not understand the nature of the FDIC’s authority in this matter as I did not understand Advanta to be a deposit-taking institution. Mr. Barr explained that many banks issue credit cards that do not accept deposits but, nevertheless are regulated banks. Advanta Bank Corp., based in Utah, is a state non-member bank for which the FDIC is the primary regulator. I also asked Mr. Barr to explain the process by which these allegations of abuse came to the attention of the FDIC for investigation and subsequent enforcement action. I have reported issues of concern to my small business, unrelated to Advanta, to the Federal Trade Commission (FTC) with disappointing results. The FTC has to see a widespread, broad pattern of abuse before it will examine the allegations and, as you can imagine, given the widespread issues of concern to consumers, their threshold for response is quite high.

Mr. Barr explained that a small business owner, or individual consumer, can go to the FDIC’s website,, and file an online complaint against a regulated bank. If you are not certain which agency oversees your bank, the FDIC will forward your complaint to the appropriate regulator. If the FDIC is the regulator, it will give a copy of your complaint to the bank for its response and open an investigation. So what I learned is that it is likely more effective to raise such issues with the FDIC than with the FTC. The FDIC can take enforcement action against regulated banks for violations of the Federal Trade Commission Act. The other takeaway from my conversation with Mr. Barr, unrelated to Advanta, is that when a natural disaster strikes a community, the FDIC issues a financial institutions letter to the banks it regulates that operate within the disaster area, urging forbearance in dealing with customers during the disaster recovery period. So thanks to the FDIC for this helpful information.

FDIC May Extend Coverage of Some Deposits

Monday, July 6th, 2009
Follow This News

Follow This News

According to American Banker, the Federal Deposit Insurance Corp. may extend its blanket coverage for noninterest deposits, currently scheduled to expire at year end. Business customers often keep checking account balances that exceed FDIC coverage limits on insured deposits in order to meet payroll and other large obligations. The FDIC provided this guarantee in the fourth quarter of 2008 as the financial crisis deteriorated. The FDIC is said to be concerned that if it fails to provide assurances that it intends to extend the program, business customers might begin to withdraw funds and split accounts across a number of insured banks, creating some unnecessary uncertainty in the banking and business systems. Small businesses that have accounts exceeding FDIC coverage requirements should watch the FDIC website for developments in this matter to ensure that their deposits remain within coverage limits.