NCLC, on behalf of its low-income clients, supports the FDIC’s proposed rule regarding record keeping of custodial accounts, but urges the FDIC to do more. Custodial accounts impact consumers who “bank” with fintech nonbank companies offering banking services.
The proposed rule will help ensure that records are up to date, which will ensure that consumer funds are held in a manner that enables them to be insured under the FDIC’s rules for pass-through insurance for custodial accounts and will assist the FDIC in prompt determinations of deposit insurance claims if an insured depository institution (IDI) fails.
Even though deposit insurance only applies to the failure of an IDI, the proposed rule may also benefit consumers if a nonbank bank service provider fails. Up-to-date recordkeeping will allow consumer funds to be traceable to the bank holding the funds, where the funds may be recoverable. The proposed rule may help prevent the problems consumers experienced in the aftermath of the Synpase bankruptcy by “promoting timely access by consumers to their funds, even in the absence of the failure of an IDI.”
However, the proposed rule alone will not address the confusion about FDIC insurance or resolve all of the problems encountered by consumers in the wake of the Synpase bankruptcy. NCLC urges the FDIC to consider prohibiting the use of the FDIC name by nonbanks in marketing to prevent future consumer harm and to consider prohibiting the use of the words “bank” and “banking” by nonbanks in marketing.
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