Federal Deposit Insurance Act: FTC Best Among Candidates to
Enforce Consumer Protection Provisions (20-AUG-03, GAO-03-971).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-971
ACCNO: A08160
TITLE: Federal Deposit Insurance Act: FTC Best Among Candidates
to Enforce Consumer Protection Provisions
DATE: 08/20/2003
SUBJECT: Credit unions
Deposit funds
Federal regulations
Insurance
Information disclosure
Consumer education
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GAO-03-971
A
Report to Congressional Committees
August 2003 FEDERAL DEPOSIT INSURANCE ACT FTC Best Among Candidates to
Enforce Consumer Protection Provisions
GAO- 03- 971
a
GAO United States General Accounting Office
The Federal Trade Commission (FTC) is responsible for enforcing compliance
with the provisions in section 43 of the FDI Act. However, due to a
variety of concerns, FTC has requested and appropriators have agreed to
prohibit FTC from enforcing these provisions. The National Credit Union
Administration (NCUA) and state regulators have imposed some related
requirements on credit unions and private deposit insurers. While these
requirements are not the same as those in section 43 provisions, they
provide some assurances that certain actions contemplated by section 43
are being satisfied.
Some privately insured credit unions GAO visited did not adequately
disclose that these institutions were not federally insured; as a result,
depositors at these institutions may not be fully informed that their
deposits are not federally insured. For example, in unannounced site
visits to 57 privately insured credit unions in Alabama, California,
Illinois, Indiana, and Ohio, GAO found that required notices were not
posted in 37 percent of the locations. No federal agency is ideally suited
to carry out the responsibilities outlined
in section 43. Although FTC, NCUA, and the Federal Deposit Insurance
Corporation (FDIC) officials generally agreed that consumers should
receive information about the insured status of their deposits, they
strongly maintained that their respective agencies should not enforce
these provisions. NCUA and FDIC officials objected to enforcing these
provisions because their agencies have no direct interest in uninsured
institutions and their involvement in the enforcement of these
requirements could undermine the purposes of the provision. FTC staff
raised jurisdictional concerns and asserted that its mission, resources,
and practices were ill suited for such a role. GAO believes that
clarifying FTC*s authority and providing it with additional flexibility in
administering these provisions represents the best option to enforce the
provisions.
States Permitting Private Deposit Insurance (March 2003) and Number of
Privately Insured Credit Unions (December 2002)
Sources: GAO and state regulators. States that have credit unions that
purchase private deposit insurance
States that permit private deposit insurance but do not have privately
insured credit unions
22 93
3 5 (Md.) 8
20 21 40
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. GAO is not recommending executive
action but identifies matters for Congressional consideration. If Congress
determines that federal oversight of section 43 is needed, Congress may
wish to consider removing the prohibition in FTC*s appropriations against
enforcing the provisions. Congress may also wish to consider modifying the
section to clarify FTC*s jurisdiction and to provide
FTC with flexibility in administering these requirements by giving FTC
authority to consult with other primary regulators, such as NCUA, or FDIC,
or partner with states.
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 971. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Richard J. Hillman at (202) 512- 8678 or
hillmanr@ gao. gov. Highlights of GAO- 03- 971, a report to congressional
committees.
August 2003
FEDERAL DEPOSIT INSURANCE ACT
FTC Best Among Candidates to Enforce Consumer Protection Provisions
Page i GAO- 03- 971 Federal Deposit Insurance Act Letter 1 Results in
Brief 3 Background 6 NCUA and State Regulators Imposed Related Disclosure
and Audit
Requirements 11 Compliance with Section 43 Provisions Varied; Potential
Impact on Consumers Most Evident in Credit Union Noncompliance with
Disclosure Requirements 13 Although There Is No Ideal Regulator to Enforce
Section 43, FTC Is
Best among Candidates to Enforce Provisions 22 Conclusions 44 Matters for
Congressional Consideration 46 Agency Comments and Our Evaluation 47
Appendix I Objectives, Scope, and Methodology 54
Appendix II Entities That Enforce Various Laws at Credit Unions 58
Appendix III Comments from the National Credit Union Administration 59
Appendix IV Comments from the Federal Trade Commission 61
Appendix V GAO Contacts and Staff Acknowledgments 72 GAO Contacts 72
Acknowledgments 72 Tables
Table 1: Number and Percent of Credit Unions Visited without Required
Signage in Lobby 15 Table 2: Number and Percent of Credit Union Materials
Reviewed
without Required Disclosures 16 Contents
Page ii GAO- 03- 971 Federal Deposit Insurance Act
Table 3: Number and Percent of Web Sites Reviewed without Required
Disclosures 17 Figure
Figure 1: States Permitting Private Deposit Insurance (March 2003) and
Number of Privately Insured Credit Unions (December 2002) 7 Abbreviations
ASI American Share Insurance BIF Bank Insurance Fund CPA Certified Public
Accountant CUIC Credit Union Insurance Corporation CUNA Credit Union
National Association FDI Act Federal Deposit Insurance Act FDIC Federal
Deposit Insurance Corporation FDICIA Federal Deposit Insurance Corporation
Improvement Act FTC Federal Trade Commission FTC Act Federal Trade
Commission Act GAO General Accounting Office NAFCU National Association of
Federal Credit Unions NASCUS National Association of State Credit Union
Supervisors NCUA National Credit Union Administration NCUSIF National
Credit Union Share Insurance Fund
RISDIC Rhode Island Share and Depositors Indemnity Corporation SAIF
Savings Association Insurance Fund SEC Securities and Exchange Commission
TISA Truth in Savings Act
This is a work of the U. S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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separately.
Page 1 GAO- 03- 971 Federal Deposit Insurance Act
August 20, 2003 Congressional Committees: After financial crises in the
1980s caused record losses in federal deposit insurance funds, Congress
enacted legislation* the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA)* that made fundamental changes to federal oversight
of depository institutions and added section 43 to the Federal Deposit
Insurance Act (FDI Act). 1 Under the section 43 disclosure requirement,
depository institutions that lack federal deposit insurance must
conspicuously inform consumers that their deposits are not federally
insured. The recent conversion of a large federally insured credit union
to private deposit insurance has raised concerns whether privately insured
credit unions are complying with requirements under this section to ensure
that members understand that the federal government does not guarantee
their accounts.
In addition to the disclosure requirements, section 43 requires that an
institution lacking federal deposit insurance be shut down if the
institution*s state regulator has not determined its eligibility for
federal deposit insurance. The section also requires any provider of
private deposit insurance to obtain and distribute an independent annual
audit to each depository institution it insures and appropriate
supervisory agency of each state in which such an institution receives
deposits. In this report,
we refer to these requirements as section 43 disclosure, shut- down, and
annual audit provisions.
The Federal Trade Commission (FTC or Commission) is statutorily
responsible for enforcing compliance with section 43. However, FTC has
never taken action to enforce section 43. Rather, FTC has requested that
it not enforce these requirements by seeking and obtaining in its
1 Pub. L. No. 102- 242, (1991). Section 43 of FDI Act originally was
designated in FDICIA as section 40 of the FDI Act. See Pub. L. No. 101-
242 S: 151( a). Congress subsequently redesignated section 40 as section
43, which is codified at 12 U. S. C. S: 1831t (2000). See Housing and
Community Development Act of 1992, Pub. L. No. 102- 550 S: 1603( b) (2).
The federal deposit insurance funds were established to restore and
maintain depositors* confidence in the banking system by providing a
government guarantee of deposits. This
guarantee insures that a person*s money on deposit with an insured
institution, within certain limits, would be safe and helps negate the
need for depositors having to assess the financial condition of their
financial institution.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 971 Federal Deposit Insurance Act
appropriations authority a prohibition against spending appropriated funds
to carry out these provisions. As a result, no federal entity is enforcing
compliance with section 43.
This report responds to Congressional concerns that section 43 provisions
are not being enforced. Specifically, the Conference Report accompanying
the Fiscal Year 2003 Consolidated Appropriations Act mandated that we (1)
determine the current status of enforcement of these requirements; (2)
determine the extent of compliance with each requirement* disclosure, shut
down, and annual audit* and the potential impact on consumers if these
requirements are not enforced; and (3) evaluate which federal agency could
most effectively enforce section 43. 2 As agreed with committee staff, we
limited our assessment of *depository
institutions lacking federal deposit insurance* to state- chartered credit
unions that purchase private primary deposit insurance. 3 To determine the
current status of enforcement of section 43 requirements, and whether
other laws or rules impose requirements similar to those of section 43, we
interviewed and reviewed available documentation from FTC staff and
officials from the National Credit Union Administration (NCUA), the
Federal Deposit Insurance Corporation (FDIC), and American Share Insurance
(ASI)* the remaining provider of nonfederal (private) deposit insurance. 4
We also surveyed the 50 state credit union regulators to determine which
states permitted private deposit insurance. We interviewed regulatory
officials in Alabama, California, Idaho, Illinois, Indiana, Maryland,
Nevada, New Hampshire, and Ohio, which include those states where credit
unions were permitted and chose not to obtain federal depository
insurance. To determine the extent of compliance with section 43 and the
potential impact on consumers from nonenforcement, we conducted
unannounced site visits to 57 locations of privately insured institutions
in Alabama, California, Illinois, Indiana, and Ohio. The purpose
2 Conference Report to accompany the House Joint Resolution 2, Fiscal Year
2003 Consolidated Appropriations Resolution, Enforcement of section 151 of
FDICIA. 3 Credit unions are nonprofit cooperatives that serve their
members by accepting deposits, making loans, and providing various other
financial services. Credit unions refer to deposits as *member shares.* 4
As of December 2002, we identified two companies that provided private
deposit
insurance to credit unions in the 50 states and the District of Columbia*
ASI of Ohio and Credit Union Insurance Corporation (CUIC) of Maryland. We
met with officials from CUIC; however, we found that this insurer was in
the process of dissolution, and therefore, we did not include it in our
analysis.
Page 3 GAO- 03- 971 Federal Deposit Insurance Act
of these visits was to determine whether state- chartered, privately
insured credit unions were providing notice that they were not federally
insured. The credit union locations were selected based on a convenience
sample using state and city location coupled with random selection of main
or branch locations within each city. We also discussed the impact of
nonenforcement with federal and state regulators noted above. To evaluate
which federal agency could most effectively enforce these requirements, we
interviewed FTC staff and officials from NCUA, FDIC, and various
interested industry groups to discuss their perspectives and obtain their
positions on enforcement of section 43 requirements. We also conducted
legal research and analysis related to these provisions. We
conducted our work in Washington, D. C., Alabama, California, Indiana,
Illinois, Maryland, Massachusetts, Ohio, and Virginia between February and
August 2003, in accordance with generally accepted government auditing
standards. We discuss our scope and methodology in more detail in appendix
I.
Although statutorily responsible for enforcing section 43, FTC, consistent
with a prohibition in its appropriations authority, has not prescribed the
manner and content of disclosures, provided guidance or undertaken
rulemaking to enforce these provisions, or brought any enforcement cases
to date. NCUA and state regulators have imposed certain related
requirements on state- chartered credit unions and private deposit
insurers. While these requirements are not fully comparable to section 43
provisions, they provide some assurance that certain actions contemplated
by section 43 are being satisfied. For example, NCUA requires federally
insured credit unions seeking to convert to private deposit insurance to
notify members that if the conversion is approved, the federal government
will not insure deposits. 5 NCUA*s requirements, however, are less
extensive than the disclosure requirements in section 43.
Compliance with section 43 disclosure, shut- down, and annual audit
requirements varied considerably. The most apparent impact on consumers,
from the lack of enforcement of these provisions, may result from credit
unions not providing adequate disclosures that they are not federally
insured.
5 12 CFR S:S: 708b. 201- 204, 708b. 301, and 708b. 302 (2003). Results in
Brief
Page 4 GAO- 03- 971 Federal Deposit Insurance Act
While state regulators and ASI officials reported monitoring whether
privately insured credit unions disclosed that they were not federally
insured, we found many privately insured credit unions that we visited did
not always make such disclosures. For example, we found that 37 percent
(21 of 57) of the locations we visited did not post signage in their
lobbies indicating that deposits were not federally insured. As a result,
depositors at these institutions may not be adequately informed, as
specifically required in section 43, that (1) their deposits are not
federally insured or (2) if the institution fails, the federal government
does not guarantee that they will get back their money.
Section 43 prohibits depository institutions lacking federal deposit
insurance from engaging in interstate commerce unless the institution*s
state regulator has determined the institution*s eligibility for federal
deposit insurance. It appears that privately insured credit unions have
not obtained this determination from their state regulators. However, this
determination may not be a meaningful protection for consumers. Because
this is a one- time requirement, this determination does not ensure that
the institution will remain eligible for federal deposit insurance. Also,
when an institution converts from federal deposit insurance to private
deposit insurance, such an eligibility determination would be redundant
because the institution had been eligible for federal deposit insurance
before it became privately insured. State regulators also reported that
although they had not made these explicit determinations, they imposed
safety and soundness standards for credit unions lacking federal deposit
insurance that the regulators believed generally satisfied the criteria
for federal deposit insurance. Although the states* examination standards
are similar, NCUA*s decision to insure a credit union is done on a case-
by- case basis and NCUA officials consider other factors when determining
eligibility. ASI officials also told us that they rigorously monitor the
safety and soundness of their insured institutions. Given the related
actions undertaken to help ensure the health of privately insured credit
unions, the effect on consumers from the lack of enforcement of this
provision may be negligible.
The remaining private deposit insurer, ASI, has complied with section 43
audit requirements and, as a result, state regulators and the management
of privately insured credit unions have had the opportunity to become
informed about the financial condition of this private deposit insurer.
Section 43 requires private deposit insurers to obtain an annual audit
that includes a determination of whether the insurer follows generally
accepted accounting principles and to distribute the audit. We found that
the audits obtained by ASI for 1999, 2000, 2001, and 2002 complied with
this federal requirement. Also, appropriate state regulators and the
Page 5 GAO- 03- 971 Federal Deposit Insurance Act
management of some privately insured credit unions told us that ASI had
provided the audits in accordance with the requirement. Since the private
deposit insurer has obtained and distributed the audit as required, it
appears consumers suffered no negative impact from the nonenforcement of
this provision.
In evaluating which agency should enforce section 43 provisions, we found
the responsibilities outlined in these provisions did not fall ideally
within any single agency*s jurisdiction. FTC staff and officials from NCUA
and FDIC told us that their respective agencies should not be charged with
administering section 43. Officials from both NCUA and FDIC objected to
having regulatory responsibility under section 43 because their agencies
have no direct interest in the operations of institutions they do not
insure. They maintained that requiring their agencies to administer
section 43 could undermine the purposes of the provision and, potentially,
the credit
union system, by closely associating private deposit insurance with
federal deposit insurance. Because NCUA administers the federal deposit
insurance fund for credit unions, it is believed that if NCUA were to
prescribe disclosure requirements or enforce the shut- down or audit
provisions under section 43, it would create a regulatory conflict of
interest that could result in NCUA*s regulatory decisions being questioned
or challenged. FTC staff raised jurisdictional concerns and offered
several reasons why the Commission*s mission, resources, and practices are
ill
suited for such a role. Those reasons reflect FTC*s perception about its
authority under section 43 and how the section should be administered, as
well as how the Commission carries out its consumer protection mission.
Based on our review of the concerns raised by FTC, NCUA and FDIC, we
believe FTC is best among these candidates to be the primary agency
responsible for implementing section 43. However, clarifying FTC*s
authority and providing it with additional flexibility in administering
these provisions could better ensure effective enforcement of these
provisions.
This report contains matters for Congressional consideration to remove
obstacles and provide additional flexibility in enforcing the consumer
protections intended under section 43. If Congress determines that federal
oversight of section 43 is needed, Congress may wish to consider removing
the prohibition in FTC*s appropriations against enforcing the provisions.
Congress may also wish to consider modifying the section to clarify FTC*s
jurisdiction and providing FTC flexibility in administering these
requirements by giving FTC authority to consult with other primary
regulators, such as NCUA or FDIC, or partner with states.
Page 6 GAO- 03- 971 Federal Deposit Insurance Act
We received oral comments on a draft of this report from FDIC and written
comments from NCUA and FTC. FDIC and NCUA generally agreed with the
report*s conclusions. FTC disagreed with the report*s conclusions and
matters for congressional consideration and stated that it was not able to
implement and enforce these provisions. The comments
are discussed in greater detail at the end of this letter, and the written
comments are reprinted as appendixes III and IV.
Under federal and state laws, all federally chartered depository
institutions and the vast majority of state- chartered institutions are
required to have federal deposit insurance. The federal deposit insurance
funds were established to restore and maintain depositors* confidence in
the banking system by providing a government guarantee of deposits. This
guarantee
insures that a person*s money on deposit with an insured institution,
within certain limits, would be safe and helps negate the need for
depositors having to assess the financial condition of their financial
institution. FDIC administers the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF). Deposit accounts maintained at
banks and thrifts generally are federally insured, regardless of who
charters the institution. Similarly, credit unions that are federally
chartered must be federally insured by the National Credit Union Share
Insurance Fund (NCUSIF), which is administered by NCUA. 6 Almost all (98
percent) credit unions are federally insured. As of December 2002, 9,688
credit unions were federally insured, with about 81 million members and
$483 billion in deposits. 7 However, in our survey of the 50 state
regulators, we found that not all
states require federal deposit insurance for credit unions they charter. 8
As of December 2002, 212 credit unions* about 2 percent of all credit
unions* chose to purchase private deposit insurance. These privately
6 Credit unions are nonprofit cooperatives that serve their members by
accepting deposits, making loans, and providing various other financial
services. Generally, primary deposit insurance is mandatory for all
depository institutions and covers members* deposits up to a specified
amount. Excess deposit insurance is optional coverage above the amount
provided by primary deposit insurance. NCUSIF provides primary deposit
insurance up to
$100,000 per member; while ASI provides primary deposit insurance up to
$250,000 per account and excess deposit insurance.
7 Of these federally insured credit unions, the federal government
chartered about 60 percent, while about 40 percent were chartered by their
respective states. 8 Through our discussions with state regulators, we
identified two uninsured credit unions, one was located in Idaho and the
other was located in New Hampshire. Background
Page 7 GAO- 03- 971 Federal Deposit Insurance Act
insured credit unions are located in eight states and had about 1.1
million members with deposits totaling about $10.8 billion, as of December
2002* a little over 1 percent of all credit union members and 2 percent of
all credit union deposits. We identified nine additional states that could
permit credit unions to purchase private deposit insurance through our
survey of 50 state regulators and subsequent discussions with state
regulators. Figure 1 illustrates the states that permit or could permit
private deposit insurance as of March 2003 and the number of privately
insured credit unions as of December 2002.
Figure 1: States Permitting Private Deposit Insurance (March 2003) and
Number of Privately Insured Credit Unions (December 2002)
The number of privately insured credit unions and private deposit insurers
has declined significantly since 1990. In 1990, 1, 462 credit unions in 23
states purchased private deposit insurance from 10 different nonfederal,
private insurers. At that time, deposits at these credit unions totaled
$18.6 billion* 73 percent more than the total of privately insured
deposits as of December 2002. Shortly after the failure of Rhode Island
Share and Depositors Indemnity Corporation (RISDIC), a private deposit
insurer in
Sources: GAO and state regulators. States that have credit unions that
purchase private deposit insurance
States that permit private deposit insurance but do not have privately
insured credit unions 22
93
Number of credit unions that purchase private deposit insurance
3 5 8 20 21
40
0 20
40 60
80 100
Ohio Illinois
California Idaho
Indiana Nevada
Maryland Alabama
Page 8 GAO- 03- 971 Federal Deposit Insurance Act
Rhode Island in 1991, almost half of all privately insured credit unions
converted to federal deposit insurance voluntarily or by state mandate. 9
As a result of the conversions from private to federal deposit insurance,
most private deposit insurers have gone out of business due to the loss of
their membership since 1990 and only one company* ASI* currently offers
private primary deposit insurance.
ASI has a statutory charter granted by the State of Ohio. 10 ASI is
licensed by the Ohio Superintendent of Insurance and is subject to
oversight by that department and Ohio*s Superintendent of Credit Unions.
Unlike federal deposit insurance, which is backed by the full faith and
credit of the United States, ASI*s insurance fund is not backed by the
full faith and credit of any governmental entity. Also, in contrast to
federal deposit
insurance, which covers up to $100,000 in an insured account, the coverage
amount provided by ASI is subject to a $250,000 statutory cap in Ohio law.
Depository institutions lacking federal deposit insurance* privately
insured credit unions* do not directly present a risk to the respective
federal deposit insurance funds and do not pay for participation in those
funds. Accordingly, they are not subject to supervision by the agencies
that administer those funds. The Federal Credit Union Act contains
criteria for credit unions applying for federal deposit insurance from
NCUA and requires NCUA to consider a list of factors before approving an
application to become federally insured. 11 For example, NCUA must assess
the credit union*s financial condition, the adequacy of reserves, the
fitness of management, and the convenience and needs of the members to be
served by the institution. To continue to be eligible for federal deposit
insurance, credit unions must continue to comply with NCUA regulations
9 Several factors precipitated the closure of RISDIC in 1991. For example,
weaknesses existed in the Rhode Island bank regulator*s and RISDIC*s
oversight of institutions. Furthermore, some of the institutions insured
by RISDIC engaged in high- risk activities. In 1991, RISDIC depleted its
reserves because of the failure of one institution. As a result, runs
occurred at several other institutions insured by RISDIC; and it was not
able to meet its insurance obligations and was forced to call in a
conservator. The Governor of Rhode Island closed all institutions insured
by RISDIC and required institutions to purchase
federal deposit insurance. 10 See Ohio Rev. Code Ann. Ch. 1761 (2002). 11
12 U. S. C. S: 1781( b).
Page 9 GAO- 03- 971 Federal Deposit Insurance Act
for measures of net worth, prompt corrective action requirements, and
rules governing investment and deposit activities. 12 Section 43 imposes
requirements on depository institutions lacking federal
deposit insurance and private deposit insurers and assigns FTC with the
responsibility for enforcing compliance with these provisions.
Specifically, section 43 requires depository institutions lacking federal
deposit
insurance to Include conspicuously on all periodic account statements,
signature cards, passbooks, certificates of deposits, or similar
instruments evidencing a deposit, a notice that the institution is not
federally insured and that if the institution fails, the federal
government does not guarantee that depositors will get back their money;
Include conspicuously in all advertising and where deposits are normally
received a notice that the institution is not federally insured; and
Obtain a written acknowledgement from depositors that the institution is
not federally insured and that if the institution fails, the federal
government does not guarantee that the depositor will get back their
money. 13 In addition, section 43 prohibits institutions lacking federal
deposit
insurance from engaging in interstate commerce unless the appropriate
supervisor of the institution*s charter state has determined that the
institution meets all eligibility requirements for federal deposit
insurance. This prohibition is referred to as the *shut- down* provision.
14 12 See, e. g., 12 U. S. C. S: 1786( e); 12 C. F. R. Parts 702 and 703.
13 12 U. S. C. S: 1831t (b). Section 43 provides an exception from these
requirements. Specifically, FTC may, by regulation or order, make
exceptions for any depository institution that, within the United States,
does not receive initial deposits of less than $100,000 from individuals
who are citizens or residents of the United States, other than money
received in connection with any draft or similar instrument issued to
transmit money. Section 43 also provides an alternative to the
acknowledgement requirement for depositors who were depositors before June
19, 1994, which allows an institution to send a series of three notices
containing the acknowledgment notice if the institution has not
obtained a written acknowledgment from such depositors. 14 12 U. S. C. S:
1831t (e). Section 43 provides that FTC, in consultation with FDIC, may
permit an exception to this requirement. Section 43 Requirements
Page 10 GAO- 03- 971 Federal Deposit Insurance Act
With respect to private deposit insurers, section 43 requires each insurer
to
Obtain an annual audit from an independent auditor using generally
accepted auditing standards that includes a determination of whether the
private deposit insurer follows generally accepted accounting principles
and has set aside sufficient reserves for losses; and
Distribute copies of the audit report to each depository institution it
insures and to the appropriate supervisory agency of each state in which
such an institution receives deposits, within specified time frames. 15
With respect to FTC, section 43
Requires the Commission to prescribe *the manner and content of
disclosure required under the section* in order to *ensure that current
and prospective customers understand the risks involved in forgoing
federal deposit insurance;*
Assigns to FTC the responsibility to enforce compliance with the section
under the Federal Trade Commission Act (FTC Act);
Authorizes FTC to determine that an institution not chartered as a
depository institution nonetheless is subject to the section, referred to
as the look- alike provision; and
Authorizes FTC, in consultation with FDIC, to exempt an institution from
the shut- down provision. 16 Since being charged with the responsibility
to enforce and implement
these requirements, FTC has requested Congress to prohibit it from
enforcing these provisions. In response, FTC*s appropriation language,
since 1993, has contained provisions prohibiting it from using funds to
implement these provisions.
FTC has authority to enforce a variety of federal antitrust and consumer
protection laws. According to FTC, it works to enhance the smooth
15 12 U. S. C. S: 1831t (a). 16 12 U. S. C. S: 1831t( c), (g), (f)( 2),
and (e)( 1), respectively.
Page 11 GAO- 03- 971 Federal Deposit Insurance Act
operation of the marketplace by eliminating acts or practices that are
unfair or deceptive, and its efforts have been directed toward stopping
actions that threaten consumers* opportunities to exercise informed
choice. The FTC Act charges FTC with responsibility for preventing the use
of unfair methods of competition and unfair or deceptive acts or
practices. 17 That act, however, provides that FTC*s powers generally do
not extend to depository institutions* banks, thrifts, and federal credit
unions* which typically are beyond FTC*s authority. 18 In addition, one
section of the FTC Act has been interpreted to mean that FTC does not have
jurisdiction over nonprofit corporations. 19 Consistent with its
appropriations authority prohibiting FTC from
enforcing section 43, FTC has not implemented regulations or orders to
prescribe the manner and content of required disclosures; to date, FTC has
not brought any enforcement cases as a result of the identification of
noncompliance with the disclosure, shut- down, and annual audit
provisions. As part of this review, we also ascertained whether other laws
or rules impose requirements similar to those of section 43. We found that
NCUA and state regulators have imposed disclosure and audit requirements
on state- chartered credit unions and private deposit insurers that, while
not comparable to section 43 requirements, help achieve the objectives of
section 43. For example, NCUA imposes notification requirements on
federally
insured credit unions seeking to convert to private deposit insurance.
NCUA requires these credit unions to notify their members, in a
disclosure, that if the conversion were approved, the federal government
would not insure deposits. Specifically, under the Federal Credit Union
Act, if a federally insured credit union terminates federal deposit
insurance or converts to nonfederal (private) insurance, the institution
must give its members *prompt and reasonable notice* that the institution
has ceased to be federally insured. 20 NCUA rules implement these
provisions by prescribing language to be used in (1) the notices of the
credit union*s proposal to terminate federal deposit insurance or convert
to nonfederal (private) insurance, (2) an acknowledgement on the voting 17
15 U. S. C. S: 45 (2000).
18 Id.; see also 15 U. S. C. S: 57a( f)( 3), a( f)( 4). 19 15 U. S. C. S:
44. This provision is discussed later in this report. 20 12 USC S: 1786(
c), (d). NCUA and State
Regulators Imposed Related Disclosure and Audit Requirements
Page 12 GAO- 03- 971 Federal Deposit Insurance Act
ballot of the member*s understanding that federal deposit insurance will
terminate, and (3) the notice of the termination or conversion. 21 Under
NCUA*s rules, the prescribed language is to include a statement apprising
members that their accounts no longer would be federally insured. Other
language to be included on the notice of a proposal to convert to private
deposit insurance and on the related voting ballot is to state that NCUA*s
insurance is backed by the full faith and credit of the United States and
that the private deposit insurance is not backed by the full faith and
credit of the United States. 22 While NCUA*s disclosure requirements
provide some assurance that
current members of credit unions converting to private deposit insurance
are notified of the lack of federal deposit insurance coverage, these NCUA
regulations do not apply to institutions that never were federally
insured. In addition, disclosures contained in NCUA*s required
notifications are not
as extensive as disclosures required under section 43. NCUA disclosure
pertains to a specific event (termination of insurance or conversion to
private deposit insurance) and is provided only to those individuals who
are members of the credit union at the time of the event. Section 43, on
the other hand, requires disclosure to all members who are depositors,
including those individuals who become members after the credit union has
terminated federal deposit insurance. Section 43 also requires that
depositors acknowledge in writing that the institution is not federally
insured and that no federal guarantee exists. 23 In addition, under
section 43, an institution*s lack of federal deposit insurance must be
stated, on an ongoing basis, in periodic account statements, signature
cards, passbooks and instruments evidencing a deposit, and in advertising
and displays.
In our review of Ohio*s law, we noted that Ohio imposes certain disclosure
requirements about the insured status of depository accounts. Ohio law
requires credit union brochures that include the name of the private
deposit insurer to also include a specific notice: *Members Accounts Are
21 12 C. F. R. S:S: 708b. 201- 204, 708b. 301, and 708b. 302. The FCU Act
requires a membership vote approving conversion from federal to private
deposit insurance. 22 We reviewed six recent conversions to private
deposit insurance and found that, prior to NCUA*s termination of the
credit union*s federal deposit insurance, these credit unions had
generally complied with NCUA*s notification requirements for conversion.
23 As noted previously, this requirement is subject to an exception, which
permits an institution to send a series of three notices to those
depositors who were depositors before June 19, 1994, and have not signed
an acknowledgement.
Page 13 GAO- 03- 971 Federal Deposit Insurance Act
Not Insured or Guaranteed by Any Government or Government- sponsored
Agency.* 24 The requirements we reviewed, like Ohio law, typically do not
require disclosure of the same information or in the same manner as is
required by section 43.
Ohio also imposes several requirements on the remaining private deposit
insurer, ASI. 25 For example, Ohio requires ASI to submit annual audited
financial statements and quarterly unaudited financial statements to Ohio
regulators. 26 While this annual audit requirement is similar to the
section 43 provision, Ohio does not require private deposit insurers to
distribute this information to the appropriate supervisory agency of each
state in which it insures deposits nor to depository institutions in which
it insures
deposits. Compliance with section 43 disclosure, shut- down, and annual
audit requirements varied considerably. The most likely impact on
consumers from the lack of enforcement of these provisions may result from
credit unions not providing adequate disclosures about not being federally
insured. We found that many privately insured credit unions have not
always complied with the disclosure requirements in section 43 that are
designed to notify consumers that the deposits in these institutions are
not federally insured. While state regulators and ASI officials reported
monitoring whether privately insured credit unions disclosed the lack of
federal deposit insurance to depositors, we found that these actions
varied
and did not ensure that all credit unions complied with required
disclosures. As a result, depositors at some privately insured credit
unions may not be adequately informed that deposits at these institutions
are not federally insured. Regarding the shut- down provision, state
regulators
reported to us that they did not make explicit determinations of 24 During
our site visits in Ohio, we visited 16 credit unions; eight credit unions
had materials that mentioned ASI. Of the 25 pieces of material we
collected at these credit unions, we found that 17 had not complied with
Ohio law.
25 The Ohio Department of Financial Institutions and the Department of
Insurance dually regulate ASI. See Ohio Rev. Code Ann. Ch. 1761 (2002). 26
Ohio law also requires ASI to provide copies of written communication with
regulatory significance to Ohio regulators and to obtain the opinion of an
actuary attesting to the
adecuacy of loss reserves established. According to officials from the
Ohio Department of Financial Institutions and the Department of Insurance,
ASI has complied with the requirements and regulators have never needed to
take corrective actions against ASI or not permitted ASI to do business in
Ohio. Compliance with
Section 43 Provisions Varied; Potential Impact on Consumers Most Evident
in Credit Union Noncompliance with Disclosure Requirements
Page 14 GAO- 03- 971 Federal Deposit Insurance Act
insurability but we found that such a determination may not provide a
meaningful protection for consumers. The remaining private deposit insurer
complied with the annual audit requirements, making it possible for state
regulators and member credit unions to become informed about the insurer*s
financial condition. Therefore, the lack of enforcement of this provision
appears to have had no direct effect on consumers. Section 43 requires
privately insured credit unions to disclose to their
members that deposits at these institutions are (1) not federally insured
and (2) if the institution fails, the federal government does not
guarantee that depositors will get back their money. Specifically, these
institutions are required to disclose this information at places where
deposits are normally received (lobbies) and on signature cards, and on
instruments evidencing a deposit (deposit slips). Advertising (brochures
and newsletters) must also contain the statement that the institutions are
not federally insured. We conducted unannounced site visits to 57
locations of privately insured credit unions (49 main and 8 branch
locations) in five
states* Alabama, California, Illinois, Indiana, and Ohio. On our visits we
looked to see whether credit unions lacking federal deposit insurance had
disclosed to their members that the institution was not federally insured
and that the federal government did not guarantee their deposits. We found
that many privately insured credit unions we visited did not conspicuously
disclose this information. Specifically, as shown in table 1, 37 percent
(21 of 57) of the locations we visited did not conspicuously post signage
in the lobby of the credit union.
Credit unions* compliance with this requirement varied by state. For
example, six of the 21 sites visited in California* or 29 percent* did not
display the required notices, while three of the five sites visited in
Alabama* or 60 percent* did not display conspicuous signage in their
lobbies. The Lobbies, Materials,
and Web Sites of Many Privately Insured Credit Unions Lacked Disclosures
as Required under Section 43
Page 15 GAO- 03- 971 Federal Deposit Insurance Act
Table 1: Number and Percent of Credit Unions Visited without Required
Signage in Lobby Sites visited without conspicuous
signage located in lobby Total number of privately insured
credit unions Total sites visited Total number Total percent
Alabama 3 5 a 3 60 California 22 21 b 6 29 Illinois 40 10 c 4 40 Indiana
21 5 2 40 Ohio 93 16 6 38
Total 179 57 21 37
Source: GAO. Notes: a For two credit unions, in addition to conducting a
site visit at the main location, we conducted a site visit at a branch
location. b For one credit union, in addition to conducting a site visit
at the main location, we conducted site
visits at three branch locations. For another credit union, in addition to
conducting a site visit at the main location, we conducted a site visit at
a branch location. c For two credit unions, we only conducted a site visit
at a branch location.
On our visits to these credit unions, we also obtained other available
credit union materials (brochures, membership agreements, signature cards,
deposit slips, and newsletters) that did not include language to notify
consumers that the credit union was not federally insured* as required by
section 43. Overall, 134 of the 227 pieces of material we obtained from 57
credit union locations* or 59 percent* did not include specified language.
Specifically, 20 of 32 signature cards we obtained from 31 credit unions,
and 19 of 20 deposit slips we obtained from 18 credit unions did not
include specified language (see table 2).
Page 16 GAO- 03- 971 Federal Deposit Insurance Act
Table 2: Number and Percent of Credit Union Materials Reviewed without
Required Disclosures
Materials without required disclosures
Type of document Total number reviewed Total number Total percent
Brochures: Membership at credit union 49 23 47 Checking accounts 24 13 54
Savings accounts 22 7 32 Investment accounts 34 27 79 Membership
agreements 19 11 58 Signature cards 32 20 62 Deposit slips 20 19 95
Newsletters 27 14 52
Total 227 134 59
Source: GAO. As part of our review, we also reviewed 78 Web sites of
privately insured credit unions and found that many credit union Web sites
were not fully compliant with section 43 disclosure requirements. For
example, 39 of the 78 sites had not included language to notify consumers
that the credit union was not federally insured. Specifically, in six of
the eight states we reviewed, more than half of the Web sites identified
and analyzed in each state were not compliant (see table 3).
Page 17 GAO- 03- 971 Federal Deposit Insurance Act
Table 3: Number and Percent of Web Sites Reviewed without Required
Disclosures Web sites without required
disclosures Total number of privately insured
credit unions Number of Web
sites identified and analyzed Total number Total percent
Alabama 3 2 0 0 California 22 18 3 17 Idaho 20 7 5 71 Illinois 40 15 8 53
Indiana 21 7 4 57 Maryland 5 2 2 100 Nevada 8 4 3 75 Ohio 93 23 14 61
Total 212 78 39 50
Source: GAO.
While these results were not obtained from a statistically valid sample
that would allow us to project the extent of compliance to all privately
insured credit unions, these findings are robust enough, both in the
aggregate and within each state, to raise concern about the lack of
required disclosures by privately insured credit unions.
The extent to which state regulators and ASI officials monitored whether
privately insured credit unions disclosed the lack of federal deposit
insurance to depositors varied. State regulators in Alabama, California,
Idaho, Indiana, Maryland, Nevada, and Ohio reported that during state
examinations of credit unions, their examiners looked to see whether
privately insured credit unions disclosed the lack of federal deposit
insurance to depositors. However, according to these state regulators,
state examination procedures did not include specific guidance on how to
determine if credit unions were compliant with disclosure requirements in
section 43. Also, state regulators reported that although they monitored
disclosures at privately insured credit unions, they generally had not
enforced these requirements. Since we observed poor compliance with
section 43 disclosure requirements in our site visits, oversight by state
regulators has not provided sufficient assurance that privately insured
credit unions are adequately disclosing that their institutions are not
federally insured. Monitoring Efforts over
Disclosures by Privately Insured Credit Unions Varied
Page 18 GAO- 03- 971 Federal Deposit Insurance Act
ASI officials told us that they had developed materials that explained the
disclosure requirements of section 43 to assist credit unions it insured
to comply with these requirements. ASI officials reported that they
provide these materials to credit unions when they convert to private
deposit
insurance and to other credit unions that requested these materials. Among
other things, these materials inform credit unions of the specific
disclosure requirements and include samples of on- premise signage.
However, our review of ASI*s samples for on- premise signage found that
not all samples included language to notify consumers that the credit
union was not federally insured.
ASI*s on- site audit program included specific guidance on how to
determine if credit unions were compliant with disclosure requirements in
section 43. In our review of two ASI examination files, we observed that
ASI officials had noted that these two credit unions in Nevada had not
included language on credit union materials, such as signature cards,
stating that the institution is not federally insured and that if the
institution fails, the federal government does not guarantee that
depositors will get back their money. In our follow- up discussions with
ASI management, they indicated that while ASI officials made some notes
regarding compliance when conducting on- site exams* as in the examination
files on the Nevada credit unions* they did not take action to enforce
these federal requirements.
The shut- down provision of section 43 prohibits depository institutions
lacking federal deposit insurance from engaging in interstate commerce
unless the institution*s state regulator has determined the institution*s
eligibility for federal deposit insurance. 27 To be eligible for federal
deposit insurance, NCUA must, among other things, assess the credit
union*s financial condition, the adequacy of reserves, the fitness of
management, and the convenience and needs of the members to be served by
the institution. It appears that privately insured credit unions have not
obtained this determination from their state regulators. One could
question, however, whether the states could or should make the
determination that institutions meet the standards for federal deposit
insurance. Even if the state applied federal deposit insurance eligibility
criteria in making the determination for credit unions, the determination
27 12 U. S. C. S: 1831t( e). Section 43 provides that FTC, in consultation
with FDIC, may permit an exception to this requirement. Credit Unions Do
Not
Appear to Have Obtained State Determinations of Insurability, but Impact
on Consumers May Be Limited
Page 19 GAO- 03- 971 Federal Deposit Insurance Act
may not necessarily provide a meaningful protection for consumers;
however, other actions were taken to ensure the health of privately
insured credit unions.
Section 43 calls for a one- time eligibility determination and does not
require an ongoing state assessment of the institutions* compliance with
federal deposit insurance eligibility requirements. 28 Because this is a
onetime determination, it does not ensure that credit unions would remain
eligible for federal deposit insurance. Other circumstances also indicate
that consumers might not benefit from the eligibility determination. For
example, when an institution converts from federal deposit insurance to
private deposit insurance, such an eligibility determination would be
redundant because the institution had been eligible for federal deposit
insurance before it became privately insured. 29 According to ASI, between
1992 and 2002, 27 credit unions converted from federal to private deposit
insurance. 30 In these cases, it would be doubtful that an eligibility
determination would benefit consumers.
State regulators also told us that while they had not made explicit
determinations that these privately insured credit unions had met
eligibility requirements for federal deposit insurance, they imposed
safety and soundness standards on credit unions lacking federal deposit
insurance, which the regulators believed generally satisfied the criteria
for 28 The language of section 43 indicates that only a single
determination is required. The
section requires an institution to shut down *unless the appropriate
supervisor of the State in which the institution is chartered has
determined that the institution meets all eligibility requirements for
Federal deposit insurance*.* 12 U. S. C. S: 1831t( e)( 1). 29 Since 1990,
the number of credit unions converting from federal to private deposit
insurance and private to federal deposit insurance* in states that permit
private deposit insurance* has been comparable. Since 1990, 26 credit
unions, located in those states that permit private deposit insurance,
converted from private to federal deposit insurance. Generally, credit
unions that converted from federal to private deposit insurance since 1990
are larger than credit unions that switched from private to federal
deposit insurance during the same period. Specifically, 10 credit unions
that converted to private deposit insurance currently each have deposits
between $100 and $500 million. By comparison, 20 credit unions that
converted to federal deposit insurance currently each have total deposits
of less than $50 million.
30 Most (25 of 27) of these conversions occurred since 1997. With respect
to credit unions, private deposit insurance predates federal deposit
insurance. In 1970, Congress created NCUSIF. Since 1994, ASI has provided
insurance for two newly chartered credit unions and for one credit union
that formerly had been uninsured.
Page 20 GAO- 03- 971 Federal Deposit Insurance Act
federal deposit insurance. 31 For example, these regulators reported that
they applied the same examination and supervision process to all
statechartered credit unions* regardless of deposit insurance status. In
addition, these states had adopted NCUA*s examination program and their
examiners had received training from NCUA. However, implementation of
NCUA*s examination program does not fully insure that those institutions
meet all federal deposit insurance eligibility standards. For example,
besides assessing a credit union*s financial condition and the adequacy of
its reserves when making insurability determinations, NCUA is also
required to factor in membership considerations such as the convenience
and needs of the members to be served by the institution. Some states also
had an approval process for credit unions seeking to purchase private
deposit insurance. Alabama, Illinois, and Ohio had written guidelines for
credit unions seeking to purchase private deposit insurance. 32 The other
five states that permitted private deposit insurance did not have written
guidelines for credit unions seeking to purchase private deposit
insurance, but Idaho, Indiana, and Nevada state regulators noted that they
had the authority to *not approve* a credit union*s purchase of private
deposit insurance. 33 Additionally, ASI had several strategies in place to
oversee the credit
unions it insured. Specifically, ASI regularly conducted off- site
monitoring and conducted on- site examinations of privately insured credit
unions at least every 3 years. It also reviewed state examination reports
for the credit unions it insured, and imposed strict audit requirements.
For example, ASI required an annual CPA audit for credit unions with $20
million or more in assets, while NCUA only required the annual audit for
credit unions with more than $500 million in assets. ASI also had targeted
its monitoring of its largest and smallest credit unions. For larger
credit unions, those with more than 10 percent of ASI*s total insured
shares, ASI planned to conduct semiannual, on- site examinations and
monthly and
31 The eligibility standards for federal credit union insurance are set
forth in the Federal Credit Union Act, 12 U. S. C. S: 1781, and in NCUA
regulations, 12 C. F. R. Part 741. 32 For example, credit unions in
Alabama seeking to purchase private deposit insurance must meet the
state*s minimum safety and soundness standards, including measures of the
credit union*s total capital and asset quality.
33 For example, regulators in Idaho stated that if the credit union did
not meet state requirements for safety and soundness, they would not
approve a credit union*s purchase of private deposit insurance.
Page 21 GAO- 03- 971 Federal Deposit Insurance Act
quarterly off- site monitoring, including a review of audits and financial
statements. 34 In January 2003, five credit unions comprising about 40
percent of ASI*s total assets qualified for this special monitoring. 35 In
January 2003, ASI also began a monitoring strategy intended to increase
its oversight of smaller credit unions. 36 First, ASI assigned a risk
level to credit unions it insured (low, moderate, or high) and then used
this assessment
to determine the extent and frequency of oversight at the credit union. 37
In January 2003, ASI had determined that 98 credit unions qualified for
this monitoring, with shares from the largest of these credit unions
totaling about $23 million.
Since the above actions were taken to ensure the health of privately
insured credit unions, the effect on consumers from the lack of
enforcement of this provision may be negligible.
The remaining private deposit insurer has complied with the audit
requirements under section 43, which requires private deposit insurers to
obtain an annual audit and provide it to state regulators and the
management of privately insured credit unions within certain time frames.
38 Among other things, the audit must be conducted by an
independent auditor using generally accepted auditing standards and
include a determination of whether the insurer follows generally accepted
accounting principles and has set aside sufficient reserves for losses.
The
private deposit insurer must provide a copy of the report to each
depository institution it insures not later than 14 days after the audit
is completed. Also, the private insurer must provide a copy of the report
to
34 Generally, ASI implemented this special monitoring plan because it
began to provide insurance to a very large credit union, with over $2
billion in total assets. 35 As of June 2003, the total shares of these
credit unions ranged from $297. 6 million to $2.5 billion. Though the plan
targeted only ASI*s five largest credit unions, ASI may increase the
number of monitored credit unions at any time so that it continually
reviews at least 25 percent of its total assets. 36 Generally, ASI
implemented this special monitoring plan due to larger- than- expected
losses at a small credit union in 2002. 37 For example, the extent of
oversight could require conducting face- to- face interviews with the
chair of the supervisory audit committee, confirming that checks over
$1000 have cleared, and verifying the value of loans, investments, and
share accounts with credit union
members in writing or over the telephone. 38 12 U. S. C. S: 1831t( a).
Remaining Private Deposit
Insurer Complied with Federal Audit Requirements
Page 22 GAO- 03- 971 Federal Deposit Insurance Act
the *appropriate supervisory agency* of each state in which such an
institution receives deposits not later than 7 days after the audit is
completed. 39 We found that the audits obtained by ASI for 1999, 2000,
2001, and 2002
complied with this federal requirement. Specifically, these audits noted
that the reviewed consolidated financial statements presented fairly, in
all material respects, ASI*s financial position and the results of their
operations and cash flows for the years reviewed in conformance with
accounting principles generally accepted in the United States. Further,
appropriate state regulators and the management of some privately insured
credit unions told us that ASI had provided them copies of the
annual audits in accordance with the requirement. Since the private
deposit insurer has obtained and distributed the audit as required, it has
given state regulators and the management of privately insured credit
unions the opportunity to become informed about the financial condition of
the private deposit insurer. This could help ensure the safety and
soundness of ASI* which, in turn, protects consumers. It appears consumers
have suffered no negative impact from the nonenforcement of this
provision.
In evaluating which agency should enforce section 43, we did not find an
agency that was ideally suited to carry out the responsibilities set forth
in the provision. Although FTC, NCUA, and FDIC officials generally agreed
that consumers should receive proper notification about the insured status
of their deposits, they maintained that their respective agencies should
not be charged with responsibility for implementing and enforcing section
43. NCUA and FDIC oppose having any responsibilities under section 43
because such a role would result in a regulatory conflict of interest and
would be inconsistent with their missions and the section*s purpose.
Credit union industry representatives believe that FTC is the appropriate
federal agency to enforce section 43. FTC staff stated that questions
about the Commission*s authority under section 43 and the Commission*s
lack of expertise to administer the section justify removing FTC from any
responsibilities under the provision. The staff asserted that other
federal agencies are more qualified to carry out the section. Based on our
review of these concerns, we believe FTC is the best among these
candidates to
39 Since ASI is a mutual, member- owned organization and is not publicly
traded, ASI is not required to make the same public filings that are
required for publicly traded firms. Although There Is No Ideal Regulator
to
Enforce Section 43, FTC Is Best among Candidates to Enforce Provisions
Page 23 GAO- 03- 971 Federal Deposit Insurance Act
enforce these provisions; however, clarifying FTC*s authority and
providing it with additional flexibility in administering these provisions
could better ensure effective enforcement of these provisions.
NCUA has taken the position that it should not be responsible for
enforcing section 43. In our discussions with NCUA officials, they offered
several reasons why NCUA should not be charged with enforcing section 43.
They expressed concern that placing the responsibility with NCUA
would closely identify NCUA with uninsured credit unions and, in turn,
create the potential for confusion as to whether an institution was
federally insured. The officials also maintained that if NCUA were
responsible for enforcing and implementing the section, the costs would be
passed on to federally insured credit unions. 40 In addition, the
officials stated that NCUA regulation of a private insurer would result in
a regulatory conflict of interest that might erode confidence in NCUA*s
authority. 41 They said that if the private deposit insurance system were
to fail while under NCUA*s purview, confidence in NCUA, as well as federal
deposit insurance for credit unions, could weaken to a point that it could
have a devastating impact on the financial health of the credit union
system.
In our discussions with FDIC officials, they expressed several reasons*
similar to those presented by NCUA* why FDIC should not be charged with
enforcing section 43. First, FDIC officials noted that FDIC insures the
deposits at banks and savings associations* but does not regulate or
supervise credit unions or insure deposits at these institutions.
Officials also expressed concern that placing the responsibility with FDIC
would closely identify a federal agency with uninsured credit unions and,
in turn, create the potential for confusion as to whether an institution
was federally insured.
40 NCUA operations are entirely supported by fees paid by federal credit
unions and income from the insurance deposit (1 percent of insured shares)
maintained with NCUSIF by all federally insured credit unions. NCUA may
also assess insurance premiums on its insured credit unions but has not
done so in over 10 years. 41 In its role as a primary share insurer, NCUA
is a competitor of any private company that provides primary share
insurance. Accordingly, NCUA*s motivations for taking any action perceived
as adverse to a private share insurer would be subject to question. NCUA
and FDIC Oppose Having Enforcement
Responsibility under Section 43
Page 24 GAO- 03- 971 Federal Deposit Insurance Act
While officials from the National Association of Federal Credit Unions
(NAFCU) oppose the option of private primary deposit insurance for credit
unions, NAFCU officials believe that since private primary deposit
insurance is an option, then section 43 requirements are important and FTC
should enforce these requirements for several reasons. NAFCU officials
believe that members of privately insured credit unions should be
adequately informed that deposits in these institutions are not federally
insured. NAFCU officials stated that the enforcement of the provisions in
section 43 requires an expertise in *consumer protections* and *deceptive
practices.* NAFCU takes the position that FTC has this expertise and,
further, that the entity does not need expertise in *safety and soundness
of depository institutions.* NAFCU officials also believe that federal
financial regulators, such as NCUA and FDIC, are not the appropriate
oversight entities for issues related to private deposit insurance because
their involvement would imply federal backing. Further, the involvement of
NCUA or FDIC in the enforcement of the requirements in section 43 could
create conflict between the federal and private insurer. NAFCU officials
commented, however, that it would be beneficial for FTC to consult with
FDIC and NCUA regarding the enforcement of these requirements because of
their expertise. Regarding enforcement, NAFCU officials believe that state
regulators could be involved in, but not solely responsible for, enforcing
certain section 43 requirements. For example, during state exams of credit
unions, examiners could determine if the credit union were compliant with
disclosure and insurability requirements of section 43 and then submit a
certification to FTC.
Credit Union National Association (CUNA) and National Association of State
Credit Union Supervisors (NASCUS) support the option of private deposit
insurance for credit unions and believe that the requirements in section
43 are important and that FTC should enforce the requirements in section
43. CUNA*s public position is that it supports the option of private
deposit insurance because the association believes *it is an integral part
of the dual- chartering system for credit unions (the system allowing
credit
unions meaningful choice between a state and federal charter).* NASCUS
also supports the option of private deposit insurance for credit unions
because the association thinks credit unions should have a choice when it
comes to deposit insurance. Specifically, NASCUS believes that if there
was only a single insurer (such as NCUA) this would create a uniform
Industry Views on Private
Deposit Insurance and the Enforcement of Section 43 Requirements
Page 25 GAO- 03- 971 Federal Deposit Insurance Act
approach, thus obviating state choice, and could revert to a rigid
framework. 42 As the agencies charged with administering and safeguarding
their
respective insurance funds, NCUA and FDIC have an interest in seeing that
the public does not lose confidence in the federal deposit insurance
system. The section 43 disclosure requirements help protect this interest
by imposing measures designed to inform depositors at nonfederally insured
institutions that their deposits are not backed by the federal government.
To the extent that institutions comply with section 43, there is a reduced
risk that depositors in nonfederally insured institutions would mistakenly
believe that their deposits are federally insured. Because section 43
protects NCUA and FDIC interests, it can be argued that those agencies
should be responsible for enforcing the provision. Although that
proposition has some merit, we have no reason to disagree with statements
by NCUA and FDIC officials that placing both private insurers and
institutions lacking federal deposit insurance under the jurisdiction of
NCUA and FDIC could increase the risk of depositor confusion and create
the potential for a loss of public confidence in the federal deposit
insurance system. Moreover, assigning responsibility to NCUA and FDIC
would mean that federally insured depositary institutions would subsidize
the regulation of nonfederally insured institutions. 43 However, we
recognize that deciding who pays the cost for regulating nonfederally
insured institutions is a complicated issue.
Some observers have asserted that if NCUA were responsible for regulating
the disclosures required by section 43, a depositor*s knowledge that the
disclosure was prescribed by NCUA could generate confusion as to NCUA*s
relationship with a nonfederally insured institution. The identity of the
federal agency may be of no consequence because the consumer might not
understand, or even be aware of, which federal agency prescribed the
disclosure requirements. However, should NCUA determine, as FTC has, that
section 43 calls for substantial disclosure of the risks relating to a
specific depository institution and its insurer, NCUA
42 We found no evidence to suggest that this is a valid concern. We are
unaware of any private insurer providing deposit insurance for banks or
thrifts, and the bank insurance system operates successfully with FDIC as
the only account insurer. 43 Because FDIC*s concerns mirror those
expressed by NCUA, our discussion refers only to NCUA*s position. Tying
NCUA and FDIC
Insurance to the Regulation of Uninsured Entities Presents a Conflict of
Interest
Page 26 GAO- 03- 971 Federal Deposit Insurance Act
would risk significant exposure to conflict of interest charges. For
example, if NCUA were to impose requirements on privately insured credit
unions that were considered by states or institutions to be too stringent,
its partiality as a regulator would be questioned. The costs of compliance
with such requirements could cause privately insured institutions to turn
to federal deposit insurance, thus adversely affecting the private deposit
insurer, NCUA*s competitor.
We recognize that in two instances Congress has chosen NCUA to implement
laws that apply to credit unions regardless of whether they are federally
insured. The Truth in Savings Act (TISA) requires that NCUA
implement its provisions with respect to all credit unions, regardless of
who insures them. The Home Mortgage Disclosure Act (HMDA) also charges
NCUA with implementing responsibility for all credit unions regardless of
their insured status. See appendix II for an illustration of who is
responsible for the enforcement of various laws at credit unions. NCUA has
promulgated regulations implementing TISA and issued guidelines for credit
union reporting under HMDA. 44 By implementing these laws, NCUA has
demonstrated the capacity to regulate operations of credit unions it does
not insure. Moreover, the cost of enforcing these laws with respect to
nonfederally insured credit unions is passed on to insured
credit unions. It is particularly noteworthy that NCUA*s TISA regulations
require specific disclosures about the terms and conditions of deposit
accounts at both federally and nonfederally insured institutions. However,
NCUA*s administration of those laws does not present the same potential or
perceived conflict of interest. The requirements under those laws apply
equally to federally insured and nonfederally insured institutions. In
contrast, regulations under section 43 would, by definition, treat the
institutions differently and expose NCUA to a regulatory conflict of
interest.
The regulatory conflict of interest also would exist with respect to NCUA
enforcement of the audit provision. NCUA would be regulating its
competition. If NCUA, like FTC, were to consider enforcement of the
requirement as called for by evaluating the conclusions of the audit or
scrutinizing the financial health of the insurer, NCUA*s action would be
inherently suspect. In addition to the regulatory conflict of interest,
closely associating NCUA with nonfederally insured institutions could have
an
44 NCUA*s TISA regulations are contained in 12 C. F. R. Part 707 (2003).
NCUA guidance on HMDA compliance is contained in NCUA publications.
Page 27 GAO- 03- 971 Federal Deposit Insurance Act
undesirable *shadow effect.* For example, if NCUA were to be responsible
for reviewing the private insurer*s audit report, NCUA would be closely
associated with determinations about the financial health of the private
deposit insurer. Should the insurer, which is subject to state regulation,
fail to honor its insurance commitments, NCUA*s credibility as a regulator
would be compromised.
Concerns about a regulatory conflict of interest also would accompany NCUA
actions involving the shut- down requirement. The agency would be closely
associated with liquidating institutions it does not insure and
safeguarding deposits it does not protect. In effect, NCUA would be
shutting down the institutions that are members of the agency*s
competition* the private deposit insurer. Similarly, NCUA enforcement of
the look alike provision could be seen as an attempt by the agency to
eliminate entities that compete with federally insured credit unions.
NCUA*s concern that its enforcement of section 43 would require federally
insured institutions to subsidize the regulation of institutions that
forgo insurance, in part involves a question of a level playing field;
that is, federally insured institutions would be forced to pay the cost of
regulating competitors who may benefit from avoiding federal deposit
insurance. This concern also touches on other considerations. For example,
this additional cost could act as an incentive for federally insured
credit unions to convert to private deposit insurance. However, who pays
for the oversight of nonfederally insured institutions is a more
complicated issue, because federally insured institutions could also
benefit from clarifying for consumers the insurance status of these
institutions, and if FTC oversees nonfederally insured institutions,
taxpayers bear the costs.
Section 43 specifies that FTC shall enforce compliance with its
requirements, and any regulations or orders issued under it. 45 In
addition, the section charges FTC with specific responsibilities. FTC is
to prescribe *the manner and content of disclosure required under the
section* in order to *ensure that current and prospective customers
understand the risks involved in forgoing federal deposit insurance.* 46
Also, the section authorizes FTC, in consultation with FDIC, to exempt an
institution from
45 12 U. S. C. S: 1831t( g). 46 12 U. S. C. S: 1831t( c). FTC Opposes
Having to
Implement and Enforce Section 43
Page 28 GAO- 03- 971 Federal Deposit Insurance Act
the shut- down provision. 47 In addition, section 43 authorizes FTC to
determine that an institution not chartered as a depository institution
nonetheless can be subject to the section. 48 FTC staff told us that
because of questions about the Commission*s authority under section 43 and
the Commission*s lack of expertise to carry out the section in accordance
with the staff*s perception of what the section requires, FTC is not the
appropriate federal agency to enforce the section. According to FTC staff,
the language of section 43 charging the
Commission with responsibility for enforcing the section (charging
provision) contains an ambiguity that could lead to challenges against the
Commission*s authority under the section. As noted above, the charging
provision specifies that the FTC shall enforce section 43 *under the [FTC]
Act.* The FTC Act, however, limits the Commission*s jurisdiction in ways
that are inconsistent with FTC*s responsibilities under section 43. For
example, FTC and federal courts have interpreted the FTC Act to mean that
the Commission has no jurisdiction over nonprofit entities, a group that
includes credit unions. 49 Another provision of the FTC Act (Section 6),
which authorizes FTC to conduct investigations, require reports and
promulgate rules and regulations to carry out the FTC Act, expressly
excludes the business of insurance from those authorities except under
very limited circumstances. 50 According to FTC staff, this limitation
raises
47 12 U. S. C. S: 1831t( e)( 1). The shut- down provision prohibits a
depository institution (other than a bank) that lacks federal deposit
insurance from using the mails or any instrumentality of interstate
commerce to receive or facilitate receiving deposits except (1) as
permitted by FTC after consultation with FDIC or (2) where the appropriate
supervisor for the state in which the institution is chartered determines
that the institution meets all
eligibility requirements for federal deposit insurance. 48 The definition
of *depository institution* contained in the section includes any entity
FTC determines to be engaged in the business of receiving deposits, which
*could reasonably be mistaken for a depository institution by the entity*s
current or prospective customers.* 12 U. S. C. S: 1831t( f)( 2)( B).
49 The FTC Act specifically excludes federally chartered credit unions
from its provisions. 15 U. S. C. S: 45 (2000); See also 15 U. S. C. S:
57a( f)( 3), (f)( 4). There is no specific exclusion for state- chartered
credit unions. However, the FTC Act has been interpreted to preclude FTC
from enforcing the act against certain nonprofit entities. See Community
Blood Bank v. FTC, 405 F. 2d 1011, 1022 (8th Cir. 1969). The FTC Act gives
the Commission authority over *persons, partnerships, or corporations.*
However, the act*s definition of *corporation* refers only to for- profit
entities. 15 U. S. C. S: 44.
50 15 U. S. C. S: 46. This provision authorizes FTC to conduct antitrust
investigations even if the investigations are applicable to the business
of insurance. Also, FTC may conduct studies and prepare reports relating
to the business of insurance only upon receiving a request approved by
Congressional committees as specified in the section. FTC Staff Said That
Questions
about the Commission*s Authority under Section 43 Could Interfere with Its
Ability to Enforce the Section
Page 29 GAO- 03- 971 Federal Deposit Insurance Act
questions about the Commission*s authority to enforce the audit provision
in section 43, which applies specifically to private insurers.
FTC staff said that FTC*s jurisdiction with respect to the audit
provision, as well as disclosures about deposit insurance, also would be
subject to challenge because of limitations the McCarran- Ferguson Act
imposes on federal laws that relate to the business of insurance. Under
the McCarranFerguson Act, a federal law applicable to the business of
insurance can be preempted by a state insurance law. Specifically, the
McCarran- Ferguson
Act precludes application of a federal statute in the face of a state law
*enacted . . . for the purpose of regulating the business of insurance,*
if the federal measure does not *specifically relate to the business of
insurance,* and would *invalidate, impair, or supersede* the state*s law.
51 The act also
specifies that the FTC Act is applicable to the business of insurance *to
the extent that such business is not regulated by State law.* 52 According
to FTC staff, this latter provision displaces application of the FTC Act
where there is state regulation of the business of insurance. The staff
explained that FTC*s authority under section 43 is unclear because the
section
requires FTC to enforce the deposit insurance disclosure requirements and
the audit provision *under the [FTC] Act* even though the FTC Act does not
apply to insurance. FTC staff believe that enforcement of the disclosure
provisions could be subject to challenge in states that regulate deposit
insurance, and that enforcement of the audit provision would be
subject to challenge because the State of Ohio specifically regulates the
only private deposit insurer, ASI.
FTC staff raised several concerns about the Commission*s ability to carry
out section 43 responsibilities. One concern relates to the manner in
which FTC would exercise its rulemaking authority under the section.
Section 43 does not specify the authority under which FTC*s implementing
rules should be promulgated. To the extent that the Commission*s
rulemaking authority under the section is subject to requirements of the
FTC Act, FTC staff made two points. They noted that the Commission*s
general rulemaking authority under the FTC Act may be exercised only *for
purposes of carrying out the provisions of [the FTC Act].* 53 The
51 15 U. S. C. S: 1012( b) (2000). See Humana Inc. v. Mary Forsyth, 525 U.
S. 299 (1999) (citing
Department of Treasury v. Fabe, 508 U. S. 491 (1993)). 52 15 U. S. C. S:
1012( b).
53 15 U. S. C. S:S: 46( g), 58. FTC Staff Raised Practical
Concerns about the Commission*s Ability to Carry Out Section 43
Page 30 GAO- 03- 971 Federal Deposit Insurance Act
Commission also has special rulemaking authority under section 18 of the
FTC Act with respect to unfair or deceptive acts or practices. 54 That
section contains specific procedures FTC must follow in prescribing rules
that define unfair or deceptive acts or practices. Among other things,
section 18 requires that Commission rules define such acts or practices
with specificity and establishes rigorous procedures for issuing the
rules. FTC staff asserted that without specific guidance from Congress as
to the
Commission*s rulemaking authority, the Commission could face having to
promulgate rules under section 43 in accordance with the requirements in
section 18 of the FTC Act. 55 They stated that because the separate
rulemaking authorities involve different procedures and authorize
different remedies, the absence of guidance in this area makes it
difficult for FTC to carry out its rulemaking responsibilities under
section 43.
FTC staff also raised concerns that section 43 requires the Commission to
engage in activities that are incompatible with the manner in which FTC
undertakes its consumer protection mission or are beyond FTC*s expertise.
According to the staff, section 43 calls upon FTC to engage in activities
more suitable for a supervisor of depository institutions. These include
reviews of insurance company accounting practices and audits, supervisory
examinations or inspections, specification of disclosures that should
include the risk profiles of depository institutions and their private
deposit insurers, and the regulation and possible closure and liquidation
of depository institutions and other entities that could be mistaken for
depository institutions (such as securities firms that offer accounts with
deposit account characteristics). The staff asserted that these
responsibilities call for close supervision by an agency that, unlike FTC,
has the expertise, tools, and resources to assess and regulate the
operations of depository institutions and is knowledgeable about risks
associated with depository institutions and deposit insurance.
54 15 U. S. C. S: 57a. 55 15 U. S. C. S: 57a.
Page 31 GAO- 03- 971 Federal Deposit Insurance Act
Several provisions of section 43 underlie FTC*s concern that the section
calls for expertise the Commission does not have. 56 The first is the
requirement that FTC promulgate disclosure regulations to ensure that
current and prospective customers understand the risks involved in
forgoing federal deposit insurance. Commission staff asserted that
disclosure of those risks requires more than a standardized notice that
the institution is not federally insured and that the federal government
does not guarantee that the depositor will get back their deposits. The
staff maintained that disclosure could involve a discussion of a
depository institution*s financial strength and liquidity, as well as the
health of the private insurer, because the risk of not having federal
deposit insurance would be tied to the health of both the institution and
the insurer.
The staff also stated that even if disclosure did not require discussion
of the safety of the particular institution and insurer, any explanation
about the risks of forgoing federal deposit insurance would be beyond
FTC*s
expertise because the Commission lacks the expertise necessary to define
those risks. For example, they said that the disclosure requirement
creates the dilemma that too much emphasis on the risks of forgoing
federal deposit insurance could dissuade depositors from using uninsured
institutions, thus weakening them; whereas, too little risk disclosure
could mean that such depositors would be inadequately informed. In
addition, the staff asserted that the Commission lacks the ability to
determine which documents and records should contain the risk disclosure.
The second provision of concern to FTC is the shut- down provision.
According to FTC staff, this section would require expertise in depository
institution operations and depositor protection. They maintained that
enforcement of this provision could require FTC to do more than merely
declare that an institution must stop doing business. They asserted that
if 56 FTC*s concerns addressed in this report relate to section 43 of the
FDI Act, which we
understand to be the subject of the mandate requiring this report. Section
43 was enacted as section 151( a) of FDICIA. In addition to its concerns
about section 43, FTC referred to 151( b) of FDICIA, which requires that,
not later than 240 days after the date of enactment of FDICIA, any private
deposit insurer shall provide a business plan to each appropriate
supervisor of each state in which deposits are received by any depository
institution lacking federal deposit insurance, the deposits of which are
insured by a private deposit insurer. The plan must contain details
relating to the insurer*s financial health, management, and other matters.
FTC maintains that it has no expertise in these areas and that, if FTC
were obligated to enforce section 151 as enacted, the Commission would
have to determine whether ASI complied with this requirement by, among
other things, scrutinizing the contents of the plan.
Page 32 GAO- 03- 971 Federal Deposit Insurance Act
an entity were instructed to shut down, the Commission would have to be
prepared to enforce that shut- down, which would necessitate *winding up*
the operations of the entity, a role that would require expertise in the
operation of depository institutions and the protection of customer
deposits. The staff also expressed a concern that section 43 fails to
provide standards for FTC to consider in deciding whether an institution
is eligible for an exemption from the shut- down provision. They
maintained that in deciding upon an exemption the Commission likely would
have to engage itself in the complexities of depository institution law.
Another aspect of section 43 that FTC believes to be beyond its expertise
is the look- alike definition. The definition of *depository institution*
in section 43 includes any entity FTC determines to be engaged in the
business of receiving deposits, and could reasonably could be mistaken for
a depository institution by the entity*s current or prospective customers.
57 Under this authority, FTC could determine that an entity not chartered
as a depository institution is subject to section 43. FTC staff asserted
that the
Commission lacks the expertise necessary to determine whether an entity*s
business constitutes *receiving deposits* or what would cause customers to
mistake an entity for a depository institution. Any entity determined to
be a look alike and not exempted would be subject to section 43, including
the requirements for disclosures regarding lack of federal deposit
insurance (even if it holds other forms of federal deposit insurance).
According to FTC staff, proper implementation of this provision, in
conjunction with the shut- down provision, could lead to shutting down a
variety of institutions such as securities firms and mutual funds.
FTC officials also stated that the Commission lacks the expertise
necessary to enforce the audit requirement for private insurers. As
mentioned previously, section 43 requires any private deposit insurer to
obtain an annual audit from an independent auditor using generally
accepted auditing standards. 58 The audit must determine whether the
insurer follows generally accepted accounting principles and has set aside
sufficient reserves for losses. FTC staff stated that diligent enforcement
would require a review of the auditor*s determinations, which, in turn,
would necessitate expertise and adequate resources for assessing both the
quality of the audit and the financial health of the insurer. FTC staff
57 12 U. S. C. S: 1831t( f)( 2)( B). 58 12 U. S. C. S: 1831t( a)( 1).
Page 33 GAO- 03- 971 Federal Deposit Insurance Act
asserted that the Commission does not possess this expertise. The staff
also were of the view that financial audits do not and cannot include
determinations about whether reserves set aside for losses are sufficient.
The staff said that FTC does not have expertise regarding loss and reserve
issues with which to determine whether some form of substitute assurances
should be deemed sufficient.
Although we found no agency was ideally suited to carry out the
responsibilities set forth in the provision, based on our review of the
concerns raised by FTC, NCUA and FDIC, we found no compelling reason to
remove FTC from its responsibility as the primary agency responsible
for implementing section 43. FTC*s concerns about its authority and
resources are rooted in an interpretation of the section that calls for an
extensive federal presence in the regulation of private deposit insurance
and depository institutions. The scheme of section 43, particularly in the
context of federal deposit insurance, suggests that a more modest
interpretation is appropriate, although modifications to the section would
enhance the Commission*s ability to enforce the section.
Although FTC*s concerns about potential challenges to its authority under
section 43 are not unrealistic, it appears that the Commission has
authority to implement and enforce the requirements of the provision even
if the Commission would not otherwise have jurisdiction under the FTC Act
or McCarran- Ferguson Act. A challenge to FTC*s authority would arise from
uncertainties about what Congress intended by instructing FTC to enforce
the section *under the FTC Act.* The phrase indicates that the Commission
must enforce the section under the FTC Act even though, under the FTC Act,
the Commission would not have authority to enforce certain provisions of
the section or take certain other regulatory actions. Interpreting section
43 to mean that FTC enforcement actions are subject to all provisions of
the FTC Act would lead to unreasonable results.
Among other things, FTC would be without authority to perform the actions
specifically prescribed in section 43. Moreover, it is clear that Congress
intended that the section would apply to credit unions because section 43
specifically addresses state- chartered credit unions in the shut FTC Best
among
Candidates for Enforcement Role
FTC*s Concerns about Potential Challenges to Its Authority under Section
43 Can Be Addressed
Page 34 GAO- 03- 971 Federal Deposit Insurance Act
down provision. 59 Even if FTC*s authority under the FTC Act did not
extend to nonprofit entities before Congress enacted section 43, such a
limitation did not preclude Congress from subjecting credit unions to
FTC*s authority under that provision. 60 We interpret section 43 as
authorizing FTC to enforce the section by using the enforcement powers
provided in the FTC Act and not as a limitation on FTC*s authority that
would defeat several purposes of the section. 61 It also appears that the
McCarran- Ferguson Act does not undermine FTC*s
authority to implement section 43. The pertinent part of that act states
as follows:
*No Act of Congress shall be construed to invalidate, impair, or supersede
any law enacted by any State for the purpose of regulating the business of
insurance, or which imposes a fee or tax upon such business, unless such
Act specifically relates to the business of insurance.* 62 As interpreted
by the Supreme Court, this provision precludes application
of a federal statute in the face of a state law *enacted . . . for the
purpose of regulating the business of insurance,* if the federal measure
does not *specifically relate to the business of insurance,* and would
*invalidate,
59 12 U. S. C. S: 1831t( e)( 1)( A) (prohibiting depository institutions
from engaging in interstate commerce unless, in the case of credit unions,
the appropriate state supervisor has certified that the institution is
eligible for federal deposit insurance for credit unions). Because all
federally chartered depository institutions must have federal deposit
insurance, section 43 can only apply to state- chartered institutions.
60 Although the repeal or amendment of a statute by implication is
disfavored, where two statutory provisions are irreconcilable and the
latter statute contains an affirmative showing of Congress* intention to
repeal or amend the earlier statute, the latter statute repeals the
irreconcilable provision of the former statute. See St. Martin Evangelical
Lutheran Church v. South Dakota, 451 U. S. 772, 788 (1981) (citations
omitted).
61 See Griffin v. Oceanic Contractors, Inc., 458 U. S. 564, 575 (1982) (*
Interpretations of a statute which would produce absurd results are to be
avoided if alternative interpretations consistent with the legislative
purpose are available.*). Under the FTC Act, FTC may conduct
administrative proceedings to enter a cease and desist order to stop
unfair methods of competition and unfair or deceptive acts or practices.
15 U. S. C. S: 45.
Also, the Commission may institute civil proceedings for violations of
rules regarding unfair or deceptive acts or practices and for violations
of cease and desist orders regarding an unfair or deceptive act or
practice. 15 U. S. C. S: 57b. 62 15 U. S. C. S: 1012( b).
Page 35 GAO- 03- 971 Federal Deposit Insurance Act
impair, or supersede* the state*s law. 63 One purpose of this provision is
to protect state insurance laws against inadvertent preemption by federal
law. 64 Section 43 does not inadvertently apply to insurance. Rather, to
the extent that the section specifically relates to deposit insurance and
to private providers of that insurance a state law relating to the same
subject
matter would be preempted. 65 Because the audit provision is valid under
the McCarran- Ferguson Act, FTC staff concerns about challenges to the
Commission*s authority to enforce the provision appear to be misplaced.
Should FTC take an action arguably inconsistent with the role contemplated
in section 43, such as
regulating the safety and soundness of providers of private deposit
insurance, the McCarran- Ferguson Act might serve as grounds to
63 See Department of Treasury v. Fabe, 508 U. S. 491, 501 (1993). It could
be argued that neither section 43 nor a state law covering the same
subject matter would be within the McCarran- Ferguson Act because neither
law relates to "the business of insurance" as the term has been defined by
the courts in determining the scope of state laws under the McCarran-
Ferguson Act. See, e. g Union Labor Life Ins. Co. v. Pireno, 458 U. S. 119
(1982) (in determining whether a practice constitutes the business of
insurance, courts consider whether the practice has the effect of
transferring or spreading a policyholder's risk;
whether the practice is an integral part of the policy relationship
between the insurer and the insured; and whether the practice is limited
to entities within the insurance industry).
64 Patton v. Triad Guaranty Insurance, 277 F. 3d 1294 (11th Cir.) (2002).
65 If section 43 were interpreted as not applying specifically to the
business of insurance, the McCarran- Ferguson Act still would not bar FTC
from enforcing the audit requirement. As the language of the McCarran-
Ferguson Act clearly states, a federal law does not violate
the act unless the law invalidates, impairs, or supersedes a state
insurance law. The Supreme Court has held that when a federal law is
applied in aid or enhancement of state regulation, and does not frustrate
any declared state policy or disturb the state*s administrative regime,
the McCarran- Ferguson Act does not bar the federal action. Humana Inc. v.
Forsyth, 525 U. S. 299 (1999). At present, the only fully functioning
provider of private deposit insurance, ASI, is subject to regulation by
the State of Ohio. As discussed earlier, the audit requirements under Ohio
law achieve a purpose similar to that of the audit requirement in section
43.
Page 36 GAO- 03- 971 Federal Deposit Insurance Act
challenge the action. However, the McCarran- Ferguson act does not stand
as a general bar to FTC*s authority to enforce the audit requirement. 66
The only explicit rulemaking requirement in section 43 is that FTC issue
regulations or orders prescribing the manner and content of disclosure
required under the section. 67 Section 43 does not designate the
procedures FTC should follow in promulgating those rules or orders. Also,
to the
extent that FTC has authority to issue other regulations under the
section, the source of that authority is less clear. Uncertainty about
FTC*s rulemaking authority might complicate the Commission*s ability to
promulgate regulations, but these potential complications do not appear to
undermine FTC*s authority to carry out the section.
Under the FTC Act, the Commission has two types of rulemaking authority.
The Commission has general authority to make rules and regulations for the
purpose of carrying out the act. 68 In addition, FTC has special
rulemaking authority the Commission must use for issuing rules with
respect to unfair or deceptive acts or practices. The special rulemaking
authority requires, among other things, that the Commission define unfair
or deceptive acts or practices with specificity and follow
stringent rulemaking procedures. 69 If the Commission*s authority to issue
regulations under section 43 is subject to the requirements of the FTC
Act, then the Commission would have to rely upon its special rulemaking
66 FTC staff suggested that because FTC*s enforcement authorities are
contained in the FTC Act, the Commission*s use of those authorities to
enforce the audit requirement might amount to the application of the FTC
Act to private deposit insurance, i. e., ASI. Contrary to FTC*s concern,
the McCarran- Ferguson Act does not affect FTC*s authority under section
43. The McCarran- Ferguson Act does not prohibit FTC from enforcing OGC
laws other than the FTC Act if they otherwise satisfy McCarran- Ferguson
requirements. As previously noted, it is unclear whether activities
subject to section 43 constitute "the business of insurance" as that term
has been defined by the courts." Moreover, FTC*s concern is directly
contrary to the scheme established in section 43. We note that when
Congress enacted section 43 it was fully aware that states regulated
private deposit insurance. See, e. g., 12 U. S. C. S: 1831t( a)( 2), (e).
67 12 U. S. C. S: 1831t( c). FTC staff indicated that the Commission*s
enforcement
responsibilities would warrant additional regulations concerning other
provisions in the section.
68 15 U. S. C. S: 46( g). 69 15 U. S. C. S: 57a. Lack of Guidance in
Section 43
for Rulemaking Procedures Can Be Addressed
Page 37 GAO- 03- 971 Federal Deposit Insurance Act
authority. 70 It is unclear whether the Commission*s authority to issue
rules under section 43 is subject to the FTC Act, however. If FTC Act
requirements do not apply, then FTC could rely upon the less stringent
rulemaking requirements for informal rulemaking under the Administrative
Procedure Act. 71 Because section 43 does not provide specific guidance
for which of FTC*s rulemaking authorities applies, it could affect the
manner in which the Commission undertakes its rulemaking. However, the
lack of guidance does not preclude the Commission from carrying out its
responsibilities under the section.
In addition to perceived jurisdictional limitations, FTC staff maintained
that enforcement of the section requires expertise and resources the
Commission does not have and would require FTC to take actions
inconsistent with its consumer protection mission. FTC staff asserted that
enforcement of the disclosure requirement and the promulgation of
regulations apprising consumers of the risk of not having federal deposit
insurance, as well as proper enforcement of the audit requirement and
shut- down provision, require an in- depth knowledge of depository
institutions and deposit insurance and FTC oversight of the safety and
soundness of institutions subject to section 43. Enforcement of the
disclosure provisions does not necessarily require such in- depth
expertise, although FTC could benefit from consulting with other federal
regulators or others to gain this expertise to more effectively enforce
these
provisions. 70 Although FTC officials described use of the special
rulemaking authority as *cumbersome,* we note that the Commission relies
on that authority to issue regulations against false advertising. See 15
U. S. C. S: 52. This section specifies that false advertising is an unfair
or deceptive act or practice; rules covering such activity must be
promulgated under the special rulemaking authority. 71 See Citizens to
Save Spencer County v. Environmental Protection Agency, 600 F. 2d 844
(D. C. Cir. 1979) (agency rulemaking authority may be implied from general
purposes and other substantive provisions of an act (citation omitted)).
In this regard, we note the possibility that the disclosure rules required
by section 43 would be exempt from the Administrative Procedure Act. A
regulation that *merely tracks* statutory requirements and thus simply
explains something the statute already requires has usually been deemed
interpretative and, therefore, exempt from the Administrative Procedure
Act. See National
Family Planning and Reproductive Health Ass., Inc. v. Sullivan, 979 F. 2d
227 (D. C. Cir., 1992) (citations omitted). With respect to disclosure
rules under section 43, the section requires FTC to issue regulations or
orders prescribing the manner and content *of disclosure required under
this section* [emphasis supplied]. Section 43 specifically states the
disclosure required under the section and does not specifically require
the disclosure of
additional information. 12 U. S. C. S: 1831t( b) (disclosure must state
that the institution is not federally insured and that if the institution
fails, the federal government does not guarantee that depositors will get
back their money). FTC*s Concern That Section 43 Enforcement Would Require
More Expertise Is Generally Not Warranted
Page 38 GAO- 03- 971 Federal Deposit Insurance Act
The only specific rulemaking mandate in section 43 requires FTC to
prescribe *the manner and content of disclosure required under this
section* in order *to ensure that current and prospective customers
understand the risks involved in forgoing federal deposit insurance.* As
noted previously, section 43 specifically requires disclosure of two
facts: (1) that the depository institution is not federally insured and
(2) if the institution fails the federal government does not guarantee
that depositors will get back their money. FTC staff interprets the
rulemaking mandate to mean that the Commission must issue regulations or
orders requiring
disclosure of information that goes beyond what is specifically required
under section 43. It appears that a less extreme interpretation of the
disclosure requirement* one that does not compromise FTC*s ability to
carry out the requirement* would be consistent with section 43.
Even if the requirement for disclosure regulations calls for more than the
disclosure specifically described in section 43, it is not clear that
Congress intended the regulations to require a discussion of the safety
and soundness of the depository institution and its private insurer. It
appears that Congress enacted the disclosure requirements in section 43 to
ensure that consumers are informed about an institution*s lack of federal
deposit insurance. 72 There is no indication in the section or its
legislative history that Congress also intended disclosure about the risks
associated with the private deposit insurer. The purpose of deposit
insurance is to free depositors from having to assess an institution*s
safety with respect to their deposits, up to the coverage limit; deposits
are protected up to that limit even if the institution becomes unsafe or
unsound. With respect to
the safety of deposits, risk disclosure is unnecessary. FTC staff
maintains that disclosure regarding private deposit insurance should be
treated differently because, unlike federal deposit insurance, private
deposit insurance is subject to the risk that a private insurer may not be
able to protect the deposits it insures. We do not take issue with FTC*s
observation about the potential risks of private deposit insurance.
However, nothing in section 43 indicates that Congress intended that
disclosures with respect to private deposit insurance should be treated
any differently; nothing in the section indicates that FTC should preempt
the states in assessing the safety and soundness of privately insured
institutions and their insurers. In section 43 Congress deferred to the
72 See S. Rep. No. 102- 167 at 61 (Oct. 1, 1991) (explaining that the
purpose of the disclosure requirement is to ensure that depositors in
nonfederally insured institutions are aware that their deposits are not
federally insured).
Page 39 GAO- 03- 971 Federal Deposit Insurance Act
states on whether to permit the operation of privately insured depository
institutions. It is reasonable to conclude that Congress anticipated that
depositors at those institutions should rely upon the states to oversee
the safety and soundness of private deposit insurers. Finally, we note
that the section 43 requirement for disclosure regulations
is similar to other laws that require FTC to regulate disclosure without
regard to its expertise concerning the subject of the disclosure. For
example, under the Fair Packaging and Labeling Act, FTC regulates
disclosure about a broad array of commercial items defined generically as
*consumer commodities.* 73 Under the FTC Act, the Commission has
responsibility for preventing false advertising without regard to the
nature of the product. 74 Also, FTC enforces several federal consumer
protection laws applicable to financial institution disclosures, including
the Truth in Lending Act, the Consumer Leasing Act, the Equal Credit
Opportunity Act, and the Electronic Funds Transfer Act. 75 Moreover, the
Commission
already has demonstrated that it has the ability to regulate extensively
how financial institutions must make disclosures about financial
transactions and customer financial privacy. 76 With respect to the shut-
down provision, whether FTC enforcement
requires expertise in depository institutions and deposit insurance
depends upon how far the Commission might seek to extend its enforcement
authority. Under the most likely enforcement scenario, depository
institution expertise would not be necessary. The shut- down provision
prohibits any depository institution lacking federal deposit insurance
from engaging in interstate commerce unless the appropriate state
supervisor has determined the institution*s eligibility for federal
73 The Fair Packaging and Labeling Act, Pub. L. No. 89- 755 (1966), as
amended, is codified at 15 U. S. C. S:S: 1451, et. seq. (2000 & 2002
Supp.). 74 15 U. S. C. S: 52. We note that under both the Fair Packaging
and Labeling Act and the FTC Act, FTC*s jurisdiction is not unlimited;
many commodities, other articles or services such as food and drug items
or securities and commodities transactions may not be within FTC*s
authority under those acts. 75 See FTC letter to the Board of Governors of
the Federal Reserve System dated February
7, 2002, summarizing its 2001 enforcement activities and methods. FTC also
has jurisdiction to enforce other laws that affect depository
institutions, such as the Fair Credit Reporting Act and the Fair Debt
Collections Practice Act. 76 See 16 C. F. R. Part 313 (2003). FTC has an
extensive program guiding financial institutions on their financial
privacy disclosure obligations. See http:// www. ftc. gov/ privacy/
glbact/ glb- faq. htm# A. Certain FTC Concerns Do
Raise Questions about Its Enforcement Capabilities or Applicability of Its
Authority
Page 40 GAO- 03- 971 Federal Deposit Insurance Act
deposit insurance. Assuming that FTC were not to grant an exemption,
enforcing the provision could involve an FTC enforcement action under the
FTC Act to shut down the institution. However, because depository
institutions subject to section 43 are state- chartered, states likely
would have primary responsibility for *winding up* an institution once it
has ceased doing business. 77 Section 43 would not prevent the application
of federal bankruptcy laws or laws administered by federal agencies. FTC
staff pointed out that under some circumstances it might be appropriate
for the Commission to remain involved in winding up an entity subject to
shut down to ensure that deposits were protected. To the extent that the
Commission might remain involved, partnering with the state would be
appropriate. FTC staff also stated that FTC lacks the expertise necessary
to evaluate a state*s determination of an institution*s eligibility for
federal deposit
insurance. Nothing in section 43 suggests that FTC is to oversee the
states in this regard. Congress deferred to the states with respect to the
determination. We agree with the FTC staff that the extent to which FTC
can challenge a state*s determination is unclear, but we see nothing in
the statute contemplating FTC review of state determinations.
Another of FTC*s concerns about the shut- down provision* that section 43
does not provide standards for the Commission to apply in deciding whether
to exempt an entity from the provision* appears to have been
partially addressed by Congress when it enacted the section. Section 43
authorizes FTC to permit an exemption from the shut- down requirement *in
consultation with the Federal Deposit Insurance Corporation.* 78 Thus,
Congress specifically did not rely on FTC*s independent judgment should
FTC consider an institution for the exemption. The section, however, does
not provide guidance on the factors the Commission should consider in
deciding whether an institution is eligible for an exemption. The extent
to which this lack of guidance might affect FTC*s enforcement of the
provision is unclear. We note, however, that FTC could seek to resolve
uncertainties about exempting an institution by consulting with FDIC, as
contemplated by section 43.
77 Section 43 would not prevent the application federal bankruptcy laws or
laws administered by federal agencies. 78 12 U. S. C. S: 1831t( e)( 1).
Page 41 GAO- 03- 971 Federal Deposit Insurance Act
The merit of FTC*s concern regarding the look alike provision depends upon
the Commission*s perception of the role Congress intended it to have.
Under the look alike provision, the Commission has discretion to decide
whether an entity not chartered as a depository institution nonetheless
should be subject to section 43. FTC staff asserted that the Commission
could exercise this authority in a way that would include various
uninsured institutions where funds are deposited, including securities
firms and mutual funds. Such institutions would be subject to FTC
enforcement of the disclosure requirements and the shut- down provision.
According to FTC staff, proper enforcement of section 43 requires the
Commission to promulgate a regulation defining look alike institutions and
subjecting them to section 43. The staff asserted that because of FTC*s
lack of expertise regarding deposits, the Commission would have to define
the look alike entities broadly, thus subjecting a potentially vast group
of entities to the section. FTC*s concern in this regard overlooks the
fundamental principal that a statute should not be interpreted to produce
absurd results. 79 It does not appear that Congress intended that FTC
would invoke the look alike provision broadly to include any entity that
accepts deposits. For example, a reasonable interpretation of the look
alike requirement does not anticipate shutting down entire industries and
entities already subject to extensive disclosure regulation under federal
law, such as securities firms and mutual funds. 80 FTC staff also
expressed concerns about what role the Commission would
have to take if the Commission were to shut down a business, particularly
if FTC took the action under the look alike authority. The staff stated
that
79 See Griffin v. Oceanic Contractors, Inc., 458 U. S. at 575, (*
Interpretations of a statute which would produce absurd results are to be
avoided if alternative [p. 34- footnote 66] interpretations consistent
with the legislative purpose are available.*). 80 Under federal case law,
certificates of deposit and other deposit instruments or accounts are not
considered investment contracts subject to the federal securities laws if
the instruments or accounts are subject to a regulatory regime that
eliminates the risk of loss, such as deposit insurance. See, e. g., Bair
v. Krug, 1987 U. S. Dist. LEXIS 15904 (D. Nev. Apr. 27, 1987)
(certificates of deposits found not to be securities where they were
issued
by an institution in a state that had a comprehensive regulatory system
providin depositors with protection that "virtually guarantees" repayment
to purchasers of such certificates); see also, Wolf v. Banco Nacional de
Mexico (Banamex), 739 F. 2d 1458 (9th Cir. 1984), cert. denied, 469 U. S.
1108 (1985) (certificates of deposit not securities because foreign bank
that issued them was subject to extensive home country regulation, even
though deposits were not insured by the home state)." Look- alike
institutions could be subject to Securities and Exchange Commission (SEC)
jurisdiction where the deposits they offer constitute investment contracts
or another type of security. The lack of compliance with section 43 would
not alone constitute a securities law violation, however.
Page 42 GAO- 03- 971 Federal Deposit Insurance Act
the Commission would lack expertise necessary to wind down the institution
and protect its customers* funds. We note that entities subject to the
shut- down provision would be subject to state and federal laws governing
the winding up of a business enterprise. In section 43, Congress did not
indicate what, if any, role FTC should play in a shut- down scenario.
However, nothing in section 43 indicates that Congress intended to preempt
laws governing the winding up of an entity.
FTC*s concerns about monitoring compliance with the audit provision are
more substantial. The audit provision does not require FTC to test the
conclusions of the audit. It appears that the Commission could carry out
its responsibility simply by relying upon the auditor*s attestations and
checking with the appropriate parties to ensure that the audit report was
properly distributed. However, as FTC staff pointed out, proper
enforcement of the provision could, under certain circumstances, call for
close scrutiny of the audit. According to FTC staff, because the
Commission lacks expertise in this area, it might be unaware of
circumstances warranting close scrutiny of the audit report.
While we found that FTC was the best candidate to enforce section 43
provisions, clarifying FTC*s authority and providing additional
flexibility in administering the section could help address some of the
Commission*s concerns about its authority and ability to enforce the
provision without undermining its objectives. For section 43 to be fully
implemented and enforced, the following changes to the identified
provisions could clarify FTC*s authority and provide flexibility for more
effective enforcement.
Disclosure provisions: FTC staff are apprehensive about the Commission*s
ability to carry out this mandate, primarily because of how they interpret
the risk disclosure requirement, an interpretation that contemplates a
discussion of the financial health of a depository institution and its
private insurer. Giving FTC the flexibility to determine what disclosure
requirements should be issued and to decide on the appropriate means for
enforcing them could help to alleviate the Commission*s concern. For
example, the Commission might choose to require nonfederally insured
institutions to obtain independent certifications from state supervisors
or another independent body that their institution is in compliance with
the section*s disclosure requirements. Also, the Commission could be given
authority to coordinate with state supervisors of nonfederally insured
credit unions to assist in enforcing the disclosure requirements or
imposing sanctions for violations of the disclosure provisions. Clarifying
FTC*s Authority
and Providing Some Flexibility Could Ensure Effective Enforcement of
Section 43
Page 43 GAO- 03- 971 Federal Deposit Insurance Act
In addition, a requirement that FTC consult with FDIC and NCUA about
disclosure requirements could ensure that disclosure under section 43
covers FDIC and NCUA concerns about the potential for confusion of private
deposit insurance with federal deposit insurance, and provides FTC with
access to expertise it deems necessary to establish disclosure
requirements. Requiring assistance from FDIC and NCUA in fashioning an
appropriate disclosure regime may help satisfy FTC concerns about its
lack of expertise. Additionally, such assistance would provide the federal
deposit insurance agencies with an opportunity to ensure that disclosures
adequately inform depositors in a manner that reduces the possibility of
confusion with federal deposit insurance and apprises them of the risks
associated with the lack of federal deposit insurance.
Shut- down provision: Several aspects of this provision raise regulatory
concerns. First, the requirement relies upon states to make a
determination that involves federal policies; specifically, whether a
particular institution is eligible for federal deposit insurance. The
eligibility determination includes many factors that federal regulators
apply on a case- by- case basis. A related concern is that the provision
does not indicate what criteria a state should use in determining that an
institution is eligible for federal deposit insurance. In addition, the
section calls upon FTC to shut down institutions that are subject to
regulation by state or federal bodies that have expertise in assessing the
consequences of a shut down as well as shutting down an institution. To
address these concerns, modifications to the shut- down provision could
require coordination between FTC and the appropriate primary regulator of
an institution in connection with a state*s determination of deposit
insurance eligibility, the Commission*s determination of an institution*s
eligibility for an exemption from the provision, and the shutting down of
an institution.
Annual audit requirements: Section 43 clearly sets forth the requirements
for a private deposit insurer with respect to the annual audit it must
obtain and to whom the annual audit must be provided. However,
the section does not indicate the extent of FTC review and monitoring
appropriate for enforcing the provision. In this regard, an amendment to
section 43 could provide FTC with specific authority to establish annual
audit requirements for private insurers. With such authority, the
Commission could set forth the conditions under which it would rely on the
annual audit or could enter into a cooperative arrangement with the
insurer*s state regulators concerning reviews of the annual audit.
Page 44 GAO- 03- 971 Federal Deposit Insurance Act
Depository institutions lacking federal deposit insurance are chartered
and supervised by states; however, the activities of these entities
involve federal interests. Congress acted on these federal interests by
enacting section 43 of the FDI Act. However, issues of enforcement remain.
Consistent with a prohibition in FTC*s appropriations authority, the
Commission has not enforced section 43 provisions. Absent enforcement, our
work showed that compliance with these provisions varied significantly.
Our primary concern, resulting from the lack of enforcement of section 43
provisions, is the possibility that members of state- chartered, privately
insured credit unions may not be adequately informed that their deposits
are not federally insured and should their institution fail, the federal
government does not guarantee that they will get their money back. The
fact that many privately insured credit unions we visited did not
conspicuously disclose that the institution was not federally insured,
raises concerns that the congressional interest in this regard is not
being fully satisfied.
The lack of enforcement of the other two provisions* shut- down and annual
audit* may have a less direct impact on consumers. While it appears that
privately insured credit unions have not obtained a determination from
their state regulators that they are eligible for federal deposit
insurance, this determination may not be a meaningful protection
for consumers. Since it is only a one- time requirement, it does not
provide any assurance that institutions will continue to operate in a
manner to remain eligible for federal deposit insurance. However, state
regulators imposed safety and soundness standards for credit unions
lacking federal deposit insurance that are similar to federal oversight
standards. NCUA officials also may consider other factors when determining
eligibility. ASI officials also told us that they rigorously monitor the
safety and soundness of their insured institutions. Given the related
actions undertaken to help ensure the health of privately insured credit
unions, the effect on
consumers from the lack of enforcement of this provision may be
negligible. Since we found that the remaining private deposit insurer has
complied with the annual audit requirements, state regulators and the
management of privately insured credit unions have had the opportunity to
become informed about the financial condition of this private deposit
insurer. Implementation of this provision helps ensure the safety and
soundness of ASI* which, in turn, helps to ensure that members of
statechartered, privately insured credit unions have a viable insurer
should their credit union fail. Since the remaining private deposit
insurer Conclusions
Page 45 GAO- 03- 971 Federal Deposit Insurance Act
complied with section 43 audit requirements, it appears consumers suffered
no negative impact from the nonenforcement of this provision.
In evaluating which federal agency should enforce these provisions, we
found the responsibilities outlined in these provisions did not fall
ideally within any single agency*s jurisdiction. FTC staff and officials
from NCUA
and FDIC opposed charging their agencies with this responsibility. NCUA
and FDIC both have an interest in making sure that consumers receive
adequate information about whether or not their deposits are federally
insured. NCUA and FDIC also have considerable expertise in disclosures at
federally insured depository institutions. However, FDIC insures the
deposits at banks and savings associations* but does not regulate or
supervise credit unions or insure deposits at these institutions. If
either FDIC or NCUA were charged with this responsibility, it could create
potential confusion about federal deposit insurance and would result in a
regulatory conflict of interest that could expose the credit union system
to a loss of public confidence in the federal deposit insurance system.
This would be inconsistent with a central purpose of the provision.
Despite this conflict, the agency that enforces section 43 would benefit
from coordination with NCUA and FDIC, because of their interests and
expertise. Partnering with state regulators could also help FTC enforce
certain section 43 requirements. For example, the Commission might choose
to require nonfederally insured institutions to obtain independent
certifications that their institution is in compliance with the section*s
disclosure requirements and that the risks of not having federal deposit
insurance have been adequately disclosed. Considering that Congress
deferred to the states on whether to permit the operation of depository
institutions lacking federal deposit insurance, it is reasonable to
conclude that Congress also relied upon the states to oversee the safety
and
soundness of those institutions and, accordingly, the risks to consumers
of dealing with them.
Although institutions lacking federal deposit insurance are chartered and
regulated by the states, protecting consumers from confusion about the
insurance of their deposits is consistent with the FTC*s consumer
protection mission. Congress also determined that the federal agency
specifically charged with protecting consumers against misleading or
deceptive information practices* FTC* should ensure that the federal
interest in proper disclosure is maintained. However, Congress has also
prohibited FTC from discharging its responsibilities under section 43.
While FTC staff has raised jurisdictional concerns, as well as practical
Page 46 GAO- 03- 971 Federal Deposit Insurance Act
concerns about the Commission*s ability to enforce these provisions, we
believe that these interests can be best addressed by retaining FTC*s
responsibility for enforcing and implementing section 43. However, the
section could be modified to reduce concerns FTC has expressed about its
ability to enforce these provisions. Such modifications could allow FTC
flexibility in discharging its responsibilities and enable it to call upon
the expertise of the federal deposit insurers, state regulators, or others
when the Commission deems it necessary without sacrificing the purposes of
the section.
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, we believe that 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 should remove the prohibition from FTC using appropriated
funds to enforce these provisions. Also, Congress should 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.
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;
Providing FTC the authority to coordinate with state supervisors of
nonfederally insured depository institutions to assist in enforcing the
disclosure requirements; and
Providing FTC authority to impose sanctions for violations of the
disclosure provisions.
To remove obstacles and provide additional flexibility for FTC*s
enforcement of the section 43 shut- down provision, Congress may wish to
consider Matters for
Congressional Consideration
Page 47 GAO- 03- 971 Federal Deposit Insurance Act
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 meets eligibility requirements for federal deposit
insurance.
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 the reliability of annual audits for
private insurers.
We requested comments on a draft of this report from the heads, or their
designees, of the Federal Deposit Insurance Corporation, the National
Credit Union Administration, and the Federal Trade Commission. We received
written comments from NCUA and FTC that are summarized below and reprinted
in appendixes III and IV respectively. In addition, we received oral
comments from the Deputy Director of Supervision and Consumer Protection
at FDIC that are summarized below. We also received technical comments
from NCUA and FTC that we incorporated into the report as appropriate.
FDIC oral comments focused on the findings in the report dealing with FDIC
and the overall report conclusions. FDIC generally agreed with the
report*s findings dealing with FDIC and stated that the arguments included
in the report against having the FDIC enforce section 43 were generally
consistent with arguments it provided to congressional staff during the
drafting of the Federal Deposit Insurance Corporation Improvement Act of
1991, which led to the decision in the enacted legislation to assign FTC
responsibility for enforcing compliance with the provisions discussed in
this report. FDIC also stated that while time did not permit it to conduct
an exhaustive legal review, it generally agreed with the report*s overall
conclusions.
NCUA concurred with the report*s conclusions that there is a need for
enforcement of the consumer protection provisions in section 43 and that,
for the reasons stated in our report, FTC, not NCUA or FDIC, is in the
best Agency Comments and Our Evaluation
Page 48 GAO- 03- 971 Federal Deposit Insurance Act
position to enforce these provisions. NCUA also commented on FTC staff
concerns expressed in this report that FTC might be challenged if it were
to take action against credit unions because its enabling legislation has
been interpreted to mean that it has no jurisdiction over nonprofit
entities, such as credit unions. NCUA agreed with our conclusion that even
if FTC*s authority under the FTC Act did not extend to nonprofit entities,
the FTC Act did not preclude Congress from subjecting credit unions to
FTC*s authority under section 43. Although NCUA agreed with this logic, it
also believed that under FTC*s enabling legislation FTC has jurisdiction
over
state- chartered credit unions. FTC disagreed with our conclusion that the
Commission is the best among federal agencies to enforce section 43
provisions. FTC believed that the solution we offered does not meet the
objectives of the statute and conflicted with our analyses. FTC stated
that three principal objectives of section 43 are to provide some federal
oversight to determine (1) the safety of deposits in institutions that are
neither supervised nor insured by the federal government; (2) the
financial soundness of those institutions and their state- supervised
insurers; and (3) that disclosures to depositors at those depository
institutions *fully inform* the depositors about an institution*s lack of
federal deposit insurance. We believe that FTC*s interpretation of section
43 is inconsistent with the overall framework and purpose of the section.
The regulatory scheme of section 43 indicates that Congress did not intend
FTC to have a safety and soundness role. For example, Congress relied
upon the states to determine whether a depository institution is eligible
for federal deposit insurance even though the determination includes an
assessment of an institution*s safety and soundness. In addition, Congress
required private deposit insurers to obtain an annual audit that satisfies
certain standards, but did not require that the insurer submit the audit
to FTC. Instead, section 43 requires the insurer to submit the audit to
the state supervisors of institutions who have deposits insured by the
entity. Finally, Congress* designation of FTC as the federal agency
responsible for enforcing section 43 indicates that Congress did not
contemplate a federal safety and soundness role. The legislative history
of section 43 supports this interpretation. The Senate bill containing the
original version of section 43 set forth substantially the same disclosure
requirements as are contained in section 43. 81 The bill designated FDIC
81 S. 543 102d Cong. S: 227 (1991) S: 227 (137 Cong. Rec. S 16534 (Nov.
13, 1991)).
Page 49 GAO- 03- 971 Federal Deposit Insurance Act
and NCUA* two safety and soundness regulators* to enforce those
requirements. However, in the next version of the bill, which added the
audit requirement, the shut- down provision, and the look- alike
provision, Congress substituted FTC as the agency charged with enforcement
responsibility. 82 The legislative history does not discuss the reasons
for this change, but it is reasonable to conclude that by substituting FTC
for the safety and soundness regulators, Congress opted against a federal
safety and soundness role under section 43. Neither section 43 nor its
legislative history indicate that Congress intended to transform FTC from
a consumer protection agency into a safety and soundness regulator of
state- supervised depository institutions and their state- supervised
private deposit insurers.
We believe that the primary objectives of section 43 are to ensure that
consumers are protected by receiving the disclosures and opportunity for
acknowledgement specified in the section; the performance of an annual
audit of the deposit insurer in accordance with generally accepted
accounting standards that attests to the insurer*s adherence to generally
accepted accounting principles and the sufficiency of the insurer*s loss
reserve; the state certification relating to the shut down provision; and
FTC*s prudent and reasoned exercise of its authority pursuant to the
lookalike provision. Our proposed solutions are consistent with this
interpretation of section 43.
FTC also raised concerns about our proposal that the Commission rely in
part on NCUA and FDIC in connection with establishing disclosure
requirements. FTC said that this recommendation would expose the
Commission*s formulation of disclosure requirements to the regulatory
conflict of interest that would arise if NCUA and FDIC were to have
primary regulatory responsibility under section 43. We believe that FTC,
as a disinterest regulator with primary responsibility in this area, could
neutralize any potential conflict of interest by considering the views of
all parties having an interest in or expertise regarding an FTC action
under section 43. FTC also contended that we *significantly overestimate*
the Commission*s
expertise and experience in auditing, deposit safety and reserves,
insurance regulation, assessment of financial soundness of depository 82
S. 543 102d Cong. S: 227 (1991) S: 227 (137 Cong. Rec. S 17478 (Nov. 21,
1991)).
Page 50 GAO- 03- 971 Federal Deposit Insurance Act
institutions or insurers, and shutting down depository institutions. The
Commission asserted that proper implementation of section 43 *would
require grafting onto the FTC, a very small agency, an entirely new
deposit safety mission requiring expertise, tools, and resources that the
FTC lacks and for which it has no other need.* We disagree. This criticism
is based on FTC*s extreme view of the federal role under section 43. FTC
assumes that Congress intended to transform the Commission into a
regulator of depository institutions and insurers even though section 43
clearly contemplates that the states are to serve in that capacity. As
stated above, we believe that section 43 calls for a more moderate role
consistent with
FTC*s mission as a consumer protection agency. Congress has charged FTC
with disclosure- related responsibilities with respect to many industries
that FTC does not regulate. FTC regulates advertising and labeling with
respect to a wide variety of consumer commodities and services, yet the
Commission does not appear to have expertise in the intricacies of all
industries subject to those authorities. Nothing in section 43 calls for
FTC to have expertise, experience, or resources to regulate the safety of
depository institutions. 83 Also, nothing in section 43 requires FTC to
oversee the closure of an institution subject to the shut- down provision.
The shut- down provision is self- activating, that is, it is a directive
to nonfederally insured depository institutions that they must cease doing
business (in interstate commerce), if they have not received an insurance
eligibility determination from the state. Congress did not provide any
procedure for the institutions to follow when shutting down, and Congress
did not charge FTC with responsibility for administering a procedure. It
should be noted that FTC has ample experience under its routine
enforcement authority in having businesses shut down.
Additional FTC criticisms were that the report overstates the
disadvantages and ignores the advantages of NCUA implementing section 43,
and that the report does not consider possible alternative assignments of
responsibility. FTC*s assertions about the efficiency of NCUA regulation
are misguided. As we discussed in the report, assigning NCUA the
responsibility for regulating its competition would present an inherent
conflict of interest that could undermine NCUA*s credibility as a
regulator.
83 We question FTC*s assertion that it lacks auditing expertise. FTC*s
operating manual provides that accountants in the Commission*s Bureau of
Competition *are available to assist all Commission staff . . . and that
staff should consider obtaining the services of an accountant in a wide
range of situations . . . .*
Page 51 GAO- 03- 971 Federal Deposit Insurance Act
Moreover, bringing nonfederally insured institutions within the umbrella
of regulation by a federal deposit insurer is inconsistent with a central
purpose of section 43, which is to ensure the separation of nonfederally
insured institutions and their private deposit insurer from federal
deposit insurance. The report does not discuss the potential for federal
regulators other than NCUA, FDIC and FTC to implement section 43 because
no other federal regulator appears to be a suitable candidate. Unlike FTC,
the Federal Reserve Board has safety and soundness and related
responsibilities regarding certain depository institutions. Placing
section 43 responsibilities under the Board would subject nonfederally
insured,
state- supervised institutions to regulation by a federal supervisor of
financial depository institutions. We believe that Congress, by selecting
FTC to administer and enforce section 43, sought to avoid such a
relationship. FTC administration of section 43 would not necessarily have
the same effect.
With respect to SEC, we note that requiring SEC to administer the section
would unnecessarily expand the Commission*s mission. In some cases a look-
alike institution (an entity that takes deposits but which is not
chartered as a depository institution) could be involved in a securities
violation, in which case SEC could take action under the federal
securities laws and would not need authority under section 43 to proceed
against an entity. Charging SEC with responsibility under section 43 could
blur the distinction between disclosure and audit obligations under the
securities laws and those established under section 43. We note, however,
FTC is not precluded from working with SEC should FTC invoke the look-
alike authority.
FTC also stated that we failed to assess the potential impact on consumers
if the disclosure provisions are not enforced. An empirical analysis of
the impact on consumers was not performed. Presumably, depositors would
not be impacted negatively by the lack of disclosure unless (a) they
believed that their deposits were federally insured because of the lack of
disclosure; (b) the institution holding their deposits failed; and (c)
their deposits were not protected* that is, the deposits were not insured
or the insurer was unable to repay the deposits of a failed institution.
We note, however, that in section 43 Congress made the judgment that
depositors should receive the disclosure required in that section. It is
reasonable to conclude that some individuals who do not receive the
benefit of that disclosure may be uncertain about the insured status of
their accounts.
Page 52 GAO- 03- 971 Federal Deposit Insurance Act
We agree with FTC*s concerns that if the section 43 enforcement authority
were immediately activated a number of institutions would be faced with
shutting down because they have not obtained determinations from their
state supervisors of eligibility for federal insurance and that some
institutions would be subject to sanctions because of disclosure failures.
We anticipate that Congress would grant FTC discretion to enforce and
implement section 43 and, if necessary, to provide for a phased- in
approach to deal with FTC*s concerns.
We will provide copies of this report to the Chairman and the Ranking
Minority Member on the Senate Committee on Banking, Housing, and Urban
Affairs, and the Chairman and the Ranking Minority Member on the House
Committee on Financial Services. Copies of this report also will be
provided to the Chairman of FTC; the Chairman of FDIC; the Chairman of
NCUA, and other interested parties. Copies will also be made available to
others upon request. In addition, this report will be available at no
charge on the GAO Web site at http:// www. gao. gov.
This report was prepared under the direction of Debra R. Johnson,
Assistant Director. Please contact Ms. Johnson or me at (202) 512- 8678 if
you or your staff have any questions about this report. Other major
contributors are acknowledged in appendix V.
Richard J. Hillman Director, Financial Markets and Community Investment
Page 53 GAO- 03- 971 Federal Deposit Insurance Act
List of Congressional Committees The Honorable Ted Stevens Chairman The
Honorable Robert C. Byrd Ranking Minority Member Committee on
Appropriations United States Senate
The Honorable Judd Gregg Chairman The Honorable Ernest Hollings Ranking
Minority Member Committee on Appropriations Subcommittee on Commerce,
Justice, State, and the Judiciary United States Senate
The Honorable C. W. Bill Young Chairman The Honorable David R. Obey
Ranking Minority Member Committee on Appropriations House of
Representatives
The Honorable Frank R. Wolf Chairman The Honorable Jose E. Serrano Ranking
Minority Member Committee on Appropriations Subcommittee on Commerce,
Justice, State, the Judiciary, and Related Agencies House of
Representatives
Appendix I: Objectives, Scope, and Methodology
Page 54 GAO- 03- 971 Federal Deposit Insurance Act
To respond to a mandate in the Conference Report to accompany the House
Joint Resolution 2, for the Fiscal Year 2003 Consolidated Appropriations
Act* which directed us to study the enforcement of section 43 of the
Federal Deposit Insurance Act* we (1) determined the current status of
enforcement of these requirements; (2) determined the extent of compliance
with each requirement and the potential impact on consumers if these
requirements were not enforced, and (3) evaluated which federal agency
could most effectively enforce section 43. 1 To better understand the
issues around deposit insurance, we reviewed
and analyzed relevant studies on federal and private deposit insurers for
both credit unions and other depository institutions. In addition, we
interviewed officials at the National Credit Union Administration (NCUA),
the Department of the Treasury, and the Federal Deposit Insurance
Corporation (FDIC) to obtain perspectives specific to federal and private
deposit insurance. We also obtained views from credit union industry
groups including the National Association of Federal Credit Unions,
National Association of State Credit Union Supervisors, and Credit Union
National Association, Inc. (CUNA).
We limited our assessment of *depository institutions lacking federal
deposit insurance* to state- chartered credit unions that purchase private
deposit insurance because banks, thrifts, and federally chartered credit
unions generally are required to purchase federal deposit insurance. 2 As
of December 2002, 214 state- chartered credit unions lacked federal
deposit insurance, and all but two were privately insured. In addition,
our analysis was limited to primary deposit insurance.
To determine the extent to which private deposit insurance is permitted
and utilized by state- chartered credit unions, we conducted a survey of
state credit union regulators in all 50 states. Our survey had a 100-
percent response rate. In addition to the survey, we obtained and analyzed
financial and membership data of privately insured credit unions from a
variety of sources (NCUA, Credit Union Insurance Corporation of Maryland,
CUNA, and American Share Insurance (ASI), the only remaining provider of
primary share insurance). We found this universe difficult to 1 Conference
Report to accompany the House Joint Resolution 2, Fiscal Year 2003
Consolidated Appropriations Act, Enforcement of section 151 of FDICIA. 2
Credit unions are nonprofit cooperatives that serve their members by
accepting deposits, making loans, and providing various other financial
services. Appendix I: Objectives, Scope, and
Methodology
Appendix I: Objectives, Scope, and Methodology
Page 55 GAO- 03- 971 Federal Deposit Insurance Act
confirm because in our discussions with state regulators, NCUA, and ASI
officials, and our review of state laws, we identified other states that
could permit credit unions to purchase private deposit insurance.
To determine the regulatory differences between privately insured credit
unions and federally insured state- chartered credit unions, we identified
and analyzed statutes and regulations related to deposit insurance at the
state and federal levels. 3 In addition, we interviewed officials at NCUA
and conducted interviews with officials at the state credit union
regulatory agencies from Alabama, California, Idaho, Indiana, Illinois,
Maryland, Nevada, New Hampshire, and Ohio. To determine the extent to
which privately insured credit unions met
federal disclosure requirements, we identified and analyzed federal
consumer disclosure provisions in section 43 of the Federal Deposit
Insurance Act, as amended, and conducted unannounced site visits to 57
privately insured credit unions (49 main and 8 branch locations) in
Alabama, California, Illinois, Indiana, and Ohio. 4 The credit union
locations were selected based on a convenience sample using state and city
location coupled with random selection of main or branch locations within
each
city. About 90 percent of the locations we visited were the main
institution rather than a branch institution. This decision was based on
the assumption that if the main locations were not in compliance, then the
branch locations would probably not be in compliance either. Although
neither these site visits, nor the findings they produced, render a
statistically valid sample of all possible main and branch locations of
privately insured credit unions necessary in order to determine the
*extent* of compliance, we believe that what we found is robust enough,
both in the aggregate and within each state, to raise concern about lack
of disclosure in privately insured credit unions. During each site visit,
using a
systematic check sheet, we noted whether or not the credit union had
conspicuously displayed the fact that the institution was not federally
insured (on signs or stickers, for example).
In addition, from these same 57 sites visited, we collected a total of 227
credit union documents that we analyzed for disclosure compliance. While
section 43 requires depository institutions lacking federal deposit
3 We limited our analysis to those states with privately insured credit
unions* Alabama, California, Idaho, Illinois, Indiana, Maryland, Nevada,
and Ohio. 4 12 U. S. C. S: 1831t.
Appendix I: Objectives, Scope, and Methodology
Page 56 GAO- 03- 971 Federal Deposit Insurance Act
insurance to disclose they are not federally insured in personal
documents, such as periodic statements, we did not collect them. We also
conducted an analysis of the Web sites of 78 privately insured credit
unions, in all eight states where credit unions are privately insured, to
determine whether disclosures required by section 43 were included. To
identify these Web sites, we conducted a Web search. We attempted to
locate Web sites for all 212 privately insured credit unions; however, we
were able to only identify 78 Web sites. We analyzed all Web sites
identified. Finally, we interviewed FTC staff to understand their role in
enforcement of requirements of section 43 for depository institutions
lacking federal deposit insurance.
To understand how private deposit insurers operate, we conducted
interviews with officials at three private deposit insurers for credit
unions* ASI (Ohio), Credit Union Insurance Corporation (Maryland), and
Massachusetts Credit Union Share Insurance Corporation (Massachusetts).
Because ASI was the only fully operating provider of private primary
deposit insurance, ASI was the focus of our review. 5 We obtained
documents related to ASI operations such as financial statements and
annual audits and analyzed them for the auditor*s opinion noting adherence
with accounting principles generally accepted in the United States. To
determine the extent to which ASI provided copies of its annual audits to
state regulators and credit unions it insures, we interviewed state
regulators in states where ASI insures credit unions and contacted the
management of 26 credit unions that are insured by ASI. Additionally, to
understand the state regulatory framework for ASI, we interviewed
officials at the Ohio Department of Insurance and Department of Financial
Institutions.
To evaluate which federal agency could most effectively enforce these
requirements, we interviewed FTC staff and officials from NCUA, FDIC, and
various interested industry groups to discuss their perspectives and
obtain their positions on enforcement of section 43 requirements. We also
conducted legal research and analysis related to these provisions.
5 As of December 2002, we identified two entities that provide private
deposit of primary share insurance to credit unions in the 50 states and
the District of Columbia* ASI and Credit Union Insurance Corporation.
However, Credit Union Insurance Corporation in Maryland was in the process
of dissolution, and therefore we did not include it in our analysis.
During our review, we learned that Massachusetts Credit Union Share
Insurance
Corporation only provides excess deposit insurance, and therefore we did
not include it in our analysis.
Appendix I: Objectives, Scope, and Methodology
Page 57 GAO- 03- 971 Federal Deposit Insurance Act
We conducted our work in Washington, D. C., Alabama, California, Indiana,
Illinois, Maryland, Massachusetts, Ohio, and Virginia between February and
August 2003, in accordance with generally accepted government auditing
standards.
Appendix II: Entities That Enforce Various Laws at Credit Unions
Page 58 GAO- 03- 971 Federal Deposit Insurance Act
Agency with enforcement authority at credit unions Law Federally insured/
federally chartered Federally insured/ state- chartered Privately insured/
state- chartered Credit Equal Credit Opportunity NCUA FTC FTC
Electronic Fund Transfers NCUA FTC FTC Fair Credit Practice Rule NCUA FTC
FTC Consumer Leasing NCUA FTC FTC Real Estate Settlement Procedures Act
HUD HUD HUD Truth in Lending NCUA FTC FTC
Housing Home Mortgage Disclosure Act NCUA NCUA NCUA Flood Disaster
Protection Act NCUA NCUA FHA/ VA Fair Housing Act HUD HUD HUD
Privacy Bank Secrecy Act (Currency and Foreign Transactions Reporting Act)
a NCUA NCUA b TREAS Fair Credit Reporting Act NCUA FTC FTC Privacy of
Consumer Financial Information NCUA NCUA FTC
Credit Union Operations Expedited Funds Availability Act NCUA NCUA FRB
Reserve Requirements FRB FRB FRB Fair Debt Collection Practices Act NCUA
FTC FTC Management Officials Interlocks Act NCUA NCUA DOJ Truth in Savings
Act NCUA NCUA NCUA Source: NCUA.
Legend: DOJ Department of Justice FHA/ VA Federal Housing Administration/
Veterans Administration FRB Federal Reserve Board FTC Federal Trade
Commission HUD Department of Housing and Urban Development TREAS Treasury
Department
Note: Although NCUA is not the primary enforcer under some of these
regulations, Title II of the Federal Credit Union Act authorizes NCUA to
take cease and desist actions for violations of any law. a The USA PATRIOT
Act amended the Bank Secrecy Act, as well as other legislation. b For
federally insured credit unions examined by NCUA.
Appendix II: Entities That Enforce Various Laws at Credit Unions
Appendix III: Comments from the National Credit Union Administration
Page 59 GAO- 03- 971 Federal Deposit Insurance Act
Appendix III: Comments from the National Credit Union Administration
Appendix III: Comments from the National Credit Union Administration
Page 60 GAO- 03- 971 Federal Deposit Insurance Act
Appendix IV: Comments from the Federal Trade Commission Page 61 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission
Appendix IV: Comments from the Federal Trade Commission Page 62 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 63 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 64 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 65 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 66 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 67 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 68 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 69 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 70 GAO- 03-
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Appendix IV: Comments from the Federal Trade Commission Page 71 GAO- 03-
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Appendix V: GAO Contacts and Staff Acknowledgments Page 72 GAO- 03- 971
Federal Deposit Insurance Act
Richard J. Hillman (202) 512- 8678 Debra R. Johnson (202) 512- 8678
In addition to the persons named above, Anne Cangi, Theresa L. Chen,
William Chatlos, Kimberly Mcgatlin, Donald Porteous, Emma Quach, Barbara
Roesmann, and Paul Thompson made key contributions to this report.
Appendix V: GAO Contacts and Staff
Acknowledgments GAO Contacts Acknowledgments
(250133)
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