FDIC Advertising Rule: Avoiding False Advertising and Misrepresentation

Adding on to the robust landscape of the banking regulatory agencies, in recent years, we've seen a pretty dramatic uptick in FDIC name and logo misuse, particularly with the rise of fintech and crypto platforms. The numbers are a bit shocking - the FDIC issued 165 warning letters to non-bank entities for misusing the FDIC name or logo in 2019-2020. That's a massive jump from just one such case in the prior ten years.

Another case is when FDIC ordered five crypto companies to cease false claims that their products were FDIC-insured. Such enforcement actions show how frequently businesses have been implying FDIC protection where none exists, misleading consumers about the safety of their funds. But, of course, like anything in compliance, FDIC advertising rules are way more nuanced than it might seem at first glance. In this guide we’ll cover all the things you need to know about to make sure you and your business are safe. 

What is the FDIC Advertising Rule?

The FDIC Advertising Rule refers to federal regulations (12 C.F.R. Part 328) that governs how the FDIC's name, logo, and deposit insurance claims can be used in marketing. Section 18(a)(4) of the Federal Deposit Insurance Act makes it illegal for any person to falsely represent an uninsured product as FDIC-insured or misuse "FDIC" in company advertising.

In practice, this means only FDIC-insured depository institutions can advertise FDIC insurance, and even they must follow strict guidelines. The rule was recently updated to "modernize" these requirements for today's digital banking environment.

Overview of the FDIC's Role in Advertising

For decades, the FDIC's role has been to instill public confidence by regulating banks' communications about deposit insurance. Since 1934, the FDIC's official sign has been displayed at bank teller windows as a symbol that deposits are backed by the U.S. government.

The FDIC mandates that every FDIC-insured bank branch prominently show this sign and include an official statement (like "Member FDIC") in advertisements, so consumers know their money is protected.

By overseeing advertising and signage, the FDIC helps customers clearly identify when they are dealing with a legitimate insured institution versus a company that is not FDIC-backed.

What You Need to Know about the New Advertising Rule?

The FDIC finalized a new rule in Dec 2023 to update and clarify Part 328, with several important changes:

• Digital FDIC Signage: Banks must now display an official FDIC digital sign on their websites, mobile apps, and ATMs - extending the familiar FDIC logo into online and mobile banking.
• Disclosures for Uninsured Products: Banks are required to use signage that clearly distinguishes FDIC-insured deposits from non-deposit products. When insured and uninsured products appear together, banks must disclose that non-deposit products "may lose value" and are not FDIC-insured.
• Third-Party Requirements: Banks must establish written policies and procedures to guarantee compliance, including monitoring any third-party fintech partners who offer deposit products on the bank's behalf.

The amendments made by the final rule took effect on April 1, 2024, and required full compliance by January 1, 2025. Although it was later postponed to May 1, 2025 and then to March 1, 2026.

Purpose of the Rule in Preventing Misuse

The driving purpose behind these updated rules is to prevent false claims about deposit insurance that could harm consumers and erode trust in the banking system. The FDIC observed that new fintech channels have led to an "increase in misleading representations" about deposit insurance online.

If people mistakenly believe their money is FDIC-insured when it isn't, they could take on risks unaware. FDIC officials warn that unchecked misuse could undermine public confidence in legitimate banks.

How does the FDIC Address False Advertising?

The FDIC has several tools to crack down on false advertising. It is authorized by law to take enforcement action against any person or company that misrepresents FDIC coverage.

In practice, the FDIC often issues cease-and-desist letters as a first step. For example, in early 2023 the FDIC sent letters to a crypto exchange (CEX.IO) and a fintech (Zera Financial) ordering them to immediately stop making false claims that their crypto products were FDIC-insured.

If a company refuses to comply, the FDIC can escalate to formal enforcement, which may include monetary penalties or legal injunctions.

Identifying False Advertising Practices

The new rule outlines what counts as false or misleading advertising. A few clear red flags include:

• Using "FDIC" or the logo in a non-bank's marketing: If a company that is not an insured bank uses the FDIC name or logo in ads in a way that suggests its own products are insured, that's a misrepresentation (unless the ad clearly names the actual insured bank involved).
• Omitting disclosures: The FDIC now calls it a "material omission" if a non-bank talks about deposit insurance but fails to disclose that the company itself is not FDIC-insured and that FDIC protection applies only if an FDIC-insured bank fails.
• Other prohibited practices include mixing insured and uninsured products in an advertisement without proper disclaimers, or falsely suggesting that crypto accounts have FDIC coverage.

Steps to Prevent Misrepresentation

Financial institutions and fintech companies need to take proactive steps to avoid misrepresentation of FDIC insurance:

1. Provide clear disclosures whenever deposit insurance is mentioned. If a fintech offers "FDIC-insured accounts" through a bank, it must "clearly disclose" that it is not itself FDIC-insured.
2. Implement internal checks and training. The FDIC now requires banks to have written procedures to guarantee compliance, including oversight of third parties promoting their deposit products.
3. Institute robust compliance policies, regular audits of marketing content, and upfront disclaimers (like labeling crypto accounts "Not FDIC Insured").

Consequences for Misuse of the FDIC Logo

The consequences for misusing the FDIC logo can be severe. At a minimum, the FDIC will issue cease-and-desist orders, as seen with FTX US in 2022 - the crypto exchange was ordered to halt "false and misleading" claims that its users' funds were FDIC insured.

Beyond remedial actions, there are legal penalties. Federal law actually makes it a criminal offense to misuse the FDIC's name. While criminal prosecution is rare, violations can lead to fines or imprisonment. More commonly, the FDIC could impose civil penalties if an entity refuses to comply.

Those who misuse the FDIC logo risk regulatory enforcement, reputational damage, monetary fines, and legal jeopardy. The FDIC has warned that false claims left unchecked could undermine confidence and will not be tolerated.

Disclosure Requirements for FDIC Insurance

Strict disclosure requirements are in place to make sure consumers know when their deposits are protected:

• FDIC-insured banks must include an "official statement" (such as "Member FDIC") in advertisements that reference deposits.
• Non-bank entities that mention FDIC insurance must clearly state that they are not banks and only the partner bank provides insurance.
• When banks list both insured deposits and uninsured products together, they must include a disclaimer that non-deposit products "are not FDIC insured".

The FDIC logo should only be displayed in connection with actual insured deposit-taking. These disclosure rules help consumers distinguish insured from uninsured offerings.

What is FDIC Insurance Coverage?

FDIC deposit insurance has specific limits that consumers must understand. By law, the FDIC insures deposits up to $250,000 per depositor, per insured bank, per ownership category. This means if you have accounts at one bank, their balances are summed and insured up to $250K total.

Importantly, FDIC insurance only covers traditional deposit products at FDIC-insured banks - it does not cover investments like stocks, bonds, mutual funds, crypto assets, or other non-deposit items.

Many consumers don't fully realize this distinction. Money kept in a payment app or crypto exchange isn't protected if the company fails. In early 2023, collapses of firms like FTX revealed that some customers thought their funds were safe but lost access to hundreds of millions of dollars because those were not bank deposits.

How Does the Rule Affect Fintechs?

The FDIC's advertising rule explicitly extends to fintechs, crypto companies, neobanks, and other non-bank institutions. This is important because these players have boomed in recent years - nearly half of U.S. households were using non-bank online payment services as of 2021.

The new rule means fintechs must be careful in how they talk about FDIC insurance. Many fintech apps partner with FDIC-insured banks to hold customer deposits - under the rule, the app can advertise deposits that are FDIC-insured only if they name the partner bank and make clear the fintech itself isn't the insurer.

This greatly impacts the "Banking-as-a-Service" market, where fintech brands offer accounts backed by chartered banks. The rule seeks to eliminate ambiguity about who provides insurance. Consumers currently hold "billions of dollars" in funds on non-bank payment apps, and many might mistakenly believe all their app-held funds are government-insured.

Some fintechs are already adding disclaimers on their websites and marketing materials. Others, especially crypto firms that previously touted pseudo-insurance, are having to stop making such representations altogether.

Given the size of the fintech sector, this change helps to increase trust - users will still enjoy fintech convenience but with clearer ideas about their protections.

Policies and Procedures for Compliance

To comply with the FDIC's Advertising Rule, financial institutions are making both front-end and back-end changes to their compliance programs.

The FDIC now requires all insured banks to establish written policies and procedures to make sure they follow Part 328. This means banks must document how they will display signs, use the FDIC logo, and review materials for compliance.

If a bank uses third parties like fintech partners, those policies must include provisions to "monitor and evaluate" those partners regarding FDIC insurance representations. Banks need an internal playbook for policing misuse of the FDIC name both internally and in collaborations with non-banks.

U.S. prudential regulators have signaled that banks should integrate checks for FDIC logo misuse into their regular compliance controls. For example, a compliance officer might periodically scan the bank's fintech partner websites to see if the FDIC logo is only where it should be.

Many banks and fintechs are forming joint oversight committees to review marketing language. The rule creates a culture of accountability: banks will hold their marketing departments and partners to these standards, and non-banks know their bank partners and the FDIC are watching.

The FDIC provided a Q&A guidance document to clarify common questions. By embedding these requirements into formal policies, the industry can systematically prevent infractions.

Strategies for Better Compliance

Banks, fintechs, and crypto companies have been developing strategies to improve compliance with the FDIC's rules. Industry experts recommend several key actions:

1. Reinforce Compliance Programs: Non-bank fintechs should strengthen their frameworks to specifically cover FDIC deposit insurance representations. This means implementing internal controls that flag potentially misleading statements before publication.
2. Audit Customer-Facing Channels: Companies should conduct thorough reviews of all platforms - websites, apps, social media, emails - to check that FDIC references are correct. Creating an inventory of everywhere "FDIC" appears helps catch compliance risks and issues.
3. Monitor Third-Party Compliance: Banks that partner with fintechs need stronger oversight routines. They should confirm compliance of partners by requiring approval of marketing materials and periodically auditing the partner's digital presence.
4. Strengthen Internal Controls: Institutions are updating internal protocols to incorporate the new requirements. For example, adding checkpoints in product launch processes to verify FDIC signage rules are met before going live.
5. Revise Formal Policies: Both banks and fintechs are rewriting policies to detail how they comply with the rule, including step-by-step procedures for addressing mistaken claims.

Many firms are also using third-party compliance consultants or tools that scan the internet for unauthorized use of a bank's name or logo.

The strategy is twofold: prevent problems through training and controls, and detect issues through monitoring and audits. This comprehensive approach not only avoids penalties but protects customers.

Final Thoughts

The FDIC Advertising Rule touches a fundamental issue: the public's knowledge of where their money is safe. By clamping down on misuse of the FDIC's name, regulators are strengthening financial security.

Regulatory scrutiny will only grow in fintech and banking - meeting these standards is now part of doing business in finance. Those who embrace compliance will thrive by earning customer confidence. Those who ignore it risk severe consequences in an environment where watchdogs are more alert than ever.

Staying up-to-date with all these FDIC advertising requirements might seem overwhelming, but that's exactly where Luthor can help. As an AI-based compliance tool, we automatically review your marketing assets to see if they meet FDIC advertising guidelines and other regulatory requirements.

Instead of manually reviewing each piece of marketing collateral or worrying about whether your fintech partners are representing your FDIC status correctly, let Luthor do the heavy lifting. Our AI technology helps reduce the risk, effort, and time needed to tackle marketing compliance at scale. Request a demo today to see how we can help streamline your compliance processes and protect your reputation while allowing your marketing team to focus on what they do best—creating great content.

Request demo access to see how we can help your organization maintain FDIC advertising compliance while streamlining your marketing review process.