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4000 - Advisory Opinions
Whether a "Bonus" Added to a Deposit by a Financial Services
Company Would Qualify for Deposit Insurance
October 30, 2000
FDIC--00--8
Christopher L. Hencke, Counsel
The enclosed advertisement indicates that your company is a
"deposit broker" as defined in the Federal Deposit Insurance Act
at 12 U.S.C. § 1831f. The
advertisement promotes a "12 month bank CD" with an annual
percentage yield (APY) of 7.75%. In addition, the advertisement
describes these CDs as follows: "Bank CDs opened through Financial
Svc Company are rock solid. They're Federally insured to $100,000 and
we have several federally insured banks to choose from."
We are concerned about your description of these CDs as
"Federally insured." According to the advertisement, the APY of
7.75% is derived by adding a "bonus" when the account is opened.
The advertisement does not state whether the bonus is added by the
FDIC-insured depository institution or whether the bonus is added by
Financial Service Company (Company). If the bonus is added by Company,
then the advertisement is misleading in suggesting that an instrument
with an APY of 7.75% is "Federally insured." Nothing is
"Federally insured" except the deposit liability of the
FDIC-insured depository institution. Any liability of Company for a
"bonus" is uninsured.
In your advertisements, you should clarify whether any "bonus"
represents a liability of Company as opposed to a liability of the
insured depository institution. If the "bonus" or advertised
interest rate represents a liability of Company (in whole or in part),
then your advertisement should not describe the instrument
as "Federally insured." Thank you for your cooperation.
Enclosure
{{4-30-01 p.4984.53}}
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