Federal Deposit Insurance Act: FTC Best Among Candidates to Enforce Consumer Protection Provisions

Highlights

This mandated report responds to Congressional concerns that provisions in section 43 of the Federal Deposit Insurance Act (FDI Act) are not being enforced. Since 1991, section 43 has required, among other things, depository institutions lacking federal deposit insurance to conspicuously disclose that deposits in these institutions are not federally insured. GAO's objectives were to (1) determine the current status of the enforcement of provisions in section 43; (2) determine the extent of compliance with each provision and the potential impact on consumers if the provisions were not enforced; and (3) evaluate which federal agency could most effectively enforce the provisions.

Recommendations

Matter for Congressional Consideration

Matter	Status	Comments
No federal agency was the clear or obvious choice to carry out the responsibilities outlined in section 43 of the FDI Act; however, if modifications were made to these provisions, FTC would be best suited to retain responsibility for enforcing and administering these provisions. If Congress determines that FTC is the appropriate agency, then Congress may wish to remove the prohibition from FTC using appropriated funds to enforce these provisions. Also, Congress may wish to clarify that FTC's authority to implement and enforce section 43 is not subject to any limitations on its jurisdiction contained in the FTC Act.	Closed – Implemented	We reported in 2003 that no federal agency was the clear or obvious choice to carry out the responsibilities outlined in section 43 of the Federal Deposit Insurance Act; however, if modifications were made to these provisions, FTC would be best suited to retain responsibility for enforcing and administering these provisions. We recommended that if Congress agreed that FTC was the appropriate agency, then it would need to remove the prohibition from FTC using appropriated funds to enforce these provisions. In addition, we recommended that Congress clarify that FTC?s authority to implement and enforce section 43 is not subject to any limitations on its jurisdiction contained in the FTC Act. In response to our recommendation, in 2003, Congress lifted the longstanding FTC appropriations ban for certain provisions of the FDICIA, including the disclosure provisions of section 43. Specifically, the Congress included a provision that would permit the FTC to set rules for advertisements and public disclosures on private deposit insurance for credit unions. Currently, the Commission is barred only from implementing the 12 U.S.C. section 1831t (e) (the so-called ?shut-down? provision?) and 12 U.S.C. section 1831 t (a) (private insurer?s business plan reporting audit provision).
To remove obstacles and provide additional flexibility for FTC's enforcement of section 43 disclosure requirements, Congress may wish to consider providing FTC the authority to consult with FDIC and NCUA when determining the manner and content of disclosure requirements to (1) provide FTC with access to expertise it deems necessary to establish disclosure requirements and (2) ensure that the required disclosures address FDIC and NCUA concerns about the potential for confusion of private deposit insurance with federal deposit insurance.	Closed – Implemented	To remove obstacles and provide additional flexibility for the Federal Trade Commission's enforcement of section 43 disclosure requirements, we asked Congress to consider providing FTC the authority to consult with the Federal Deposit Insurance Corporation and the National Credit Union Administration when determining the manner and content of disclosure requirements to (1) provide FTC with access to expertise it deems necessary to establish disclosure requirements and (2) ensure that the required disclosures address FDIC and NCUA concerns about the potential for confusion of private deposit insurance with federal deposit insurance. In the conference committee report accompanying the 2003 legislation, Congress directed the FTC to consult with the FDIC and NCUA when determining the manner and contact of disclosure requirements.
To remove obstacles and provide additional flexibility for FTC's enforcement of section 43 disclosure requirements, Congress may wish to consider providing FTC the authority to coordinate with state supervisors of nonfederally insured depository institutions to assist in enforcing the disclosure requirements.	Closed – Implemented	To remove obstacles and provide additional flexibility for the Federal Trade Commission's enforcement of section 43 disclosure requirements, we asked Congress to consider providing FTC the authority to coordinate with state supervisors of non-federally insured depository institutions to assist the FTC in enforcing these requirements. In the conference committee report accompanying the 2003 legislation, Congress directed the FTC to coordinate with state supervisors of non-federally insured depository institutions to assist the FTC in enforcing these requirements.
To remove obstacles and provide additional flexibility for FTC's enforcement of section 43 disclosure requirements, Congress may wish to consider providing FTC authority to impose sanctions for violations of the disclosure provisions.	Closed – Implemented	Congress has provided FTC with enforcement authority for section 43. While FTC cannot directly issue civil penalties for institutions not complying with the disclosure requirements, section 43(g) authorizes FTC to enforce compliance with the disclosure requirements under the Federal Trade Commission Act. Under this Act, FTC can issue an injunctive order and then if an institution is in violation of the order, FTC can issue civil penalties for noncompliance.
To remove obstacles and provide additional flexibility for FTC's enforcement of section 43 shut-down provision, Congress may wish to consider requiring coordination between FTC and the appropriate primary regulator of an institution when (1) FTC considers whether to exempt an institution from the requirement to obtain a state determination that it meets eligibility requirements for federal deposit insurance; and (2) FTC seeks to shut down an institution because it has not obtained a state determination that it needs eligibility requirements for federal deposit insurance.	Closed – Not Implemented	The Federal Trade Commission has been barred from implementing the shut down provision.
In light of some uncertainty as to the scope of FTC's jurisdiction under the FTC Act to regulate insurance entities in matters other than antitrust, Congress may wish to consider clarifying FTC's authority regarding the annual audit provision by providing FTC with specific authority to establish requirements, such as attestation requirements, to ensure that reliability of annual audits for private insurers.	Closed – Not Implemented	No action taken.

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