Congress has acted to prevent unscrupulous deposit brokers from winning the trust of consumers with misleading advertising that implies they are endorsed by the FDIC.
The problem that Congress is attempting to fix involves deposit brokers who falsely advertise or suggest that they are "FDIC-approved" or "FDIC-registered." Deposit brokers have never been endorsed, registered or examined by the FDIC. However, some brokers have represented to the public that they were FDIC-approved based on a 1991 law that required brokers to notify the FDIC if they were placing customers' deposits in an insured institution. But that notice requirement was simply for information-gathering purposes, and it did not give the FDIC any authority to regulate or supervise the activities of deposit brokers.
To prevent further confusion and misrepresentation, the FDIC asked Congress to eliminate the notification requirement, and the lawmakers did so in December 2000. "Deposit brokers may no longer imply or advertise that they have a seal of approval from the FDIC," says Kathleen Nagle of the FDIC's consumer affairs division in Washington.
As reported previously in FDIC Consumer News, deposit brokers who sell bank-issued certificates of deposit sometimes negotiate a higher interest rate than a traditional CD sold directly by a bank, but the broker-sold CDs may have terms and conditions that pose greater risks to the consumer. Unfortunately, some brokers have misinformed customers about these risks. For example, some deposit brokers have used misleading tactics to sell CDs with 20- or 30-year maturities to elderly people who thought they were purchasing one-year CDs.
If you're considering an offer of a broker-sold CD, we suggest that you try to deal with someone you already know and trust, perhaps a stockbroker or financial planner with whom you've had a good, long-term working relationship. If you have a question or concern about a deposit broker, start with your state government's consumer protection office, which will be listed in your phone book and other directories, often as part of the state Attorney General's office. For more tips and information about how to avoid problems with bank CDs sold by brokers, see the Fall 2000 issue of FDIC Consumer News.
