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6144 Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Proposed Rulesalleviate such confusion and possiblycould increase confusion amongconsumers.The issue of advertising by depositoryinstitutions is of great importance to theFDIC. We are concerned thatindividuals understand when they areentrusting their money to an FDICinsured institution and when they arenot. We are also extremely concernedthat individuals understand when theirfunds are insured and when they arenot. The FDIC invites comment onwhether the proposed rule or thealternative discussed herein (or someother alternative) would better achievethese objectives. In addition we invitecomment on the related issue of theincreased burden to savings associationsthat the proposed rule would entailversus the potential benefits to beachieved.(b) Proposals To Consolidate andStreamline Exceptions to the RequiredUse of the Official AdvertisingStatement and To Prohibit InsuredDepository Institutions From Using theOfficial Advertising Statement inAdvertisements Concerning NondepositInvestment ProductsPart 328 contains 20 exceptions to therequired use of the official advertisingstatement. 12 CFR 328.3(c). The FDICproposes to consolidate and streamlinethis paragraph into 11 exceptions. Thetwo separate exceptions for radio andtelevision advertisements not exceedingthirty seconds in time, 12 CFR 328.3(8)and (9), would be combined into oneexception without any change insubstance.The nine exceptions foradvertisements relating to various typesof products or services which do notrelate to deposits, 12 CFR 328.3(12)through (20), would be combined into asingle exception for advertisementswhich do not relate to deposit productsor services. The current rule only hasexceptions for advertisements relating tocertain types of nondeposit products orservices. The proposed rule wouldcreate an exception for anyadvertisement which does not relate toa deposit product or service. This wouldhave the effect of broadening theexceptions to the required use of theofficial advertising statement. The FDICbelieves that there is no need to requirethe use of the official advertisingstatement in any advertisement whichdoes not relate to deposit products orservices. This proposal is consistentwith the purpose of the regulation andthe mandates of section 303 of theCDRIA.Paragraph (d) of the proposed rulewould prohibit an insured depositoryinstitution from including the officialadvertising statement or any similarstatement in advertisements relating tonondeposit investment products orsimilar nondeposit products. Inadvertisements containing informationabout both insured deposits andnondeposit investment products (orsimilar nondeposit products), theinformation concerning insureddeposits shall be clearly segregated fromthe information about nondepositinvestment products (or similarnondeposit products) and shall containeither the official statement, or anysimilar statement, including, but notlimited to, statements to the effect thatthe depository institution’s deposits ordepositors are insured by the FederalDeposit Insurance Corporation to themaximum of $100,000 for eachdepositor, or that specific depositproducts are insured by the FederalDeposit Insurance Corporation.As indicated above, many consumerserroneously believe that all bank orthrift products or services are FDICinsured. A recent independent surveyfound that 30% of investors are notaware that the FDIC does not insurebank mutual funds. 2 The FDIC ismaking this proposal because it isextremely concerned that depositoryinstitution customers understand whatis and is not covered by FDIC insurance.The FDIC believes that a prohibition onthe use of the official advertisingstatement in advertisements relating tonondeposit investment products orsimilar nondeposit products and arequirement that advertisementscontaining information about bothinsured deposits and nondepositinvestment products (or similarnondeposit products) clearly segregatethe information about the differentproducts will help to minimizecustomer confusion on this matter.This proposal is premised on thebelief that it would minimize customerconfusion with respect to the noninsuredstatus of nondeposit investmentproducts, such as mutual funds, andother similar nondeposit products.Conversely, there are other alternativeswhich may be more effective atalleviating customer confusion. Forexample, it could be argued that theproposal to require the use of the officialstatement (or similar statement) inadvertisements concerning both types ofproducts will further confuse consumersas to the insured and non-insured status2 Scott Smith, ‘‘Survey Says 70% of InvestorsKnow U.S. Doesn’t Insure Mutual Funds’’,American Banker, May 15, 1996, at 3 (discussingresults of a survey of Investor Protection Trustconducted by Princeton Survey ResearchAssociates).of the products involved. Accordingly,not requiring, or prohibiting, the use ofthe official statement (or similarstatement) in advertisements containinginformation on both types of productsmay be more effective at minimizingcustomer confusion. The FDIC invitescomment on the rule as proposed inparagraph (d), the alternatives discussedherein, or any other possible approach.In addition we invite comment on therelated issue of the increased burden toinsured depository institutions that theproposed rule or the alternatives wouldentail, versus the potential benefits to beachieved.Another alternative to minimizecustomer confusion as to the insured ornon-insured status of the variousproducts offered by insured depositoryinstitutions is to require insureddepository institutions to make certaindisclosures when they advertisenondeposit investment products, suchas mutual funds. Specifically, insureddepository institutions would berequired to disclose that such productsare: not insured by the FDIC; notdeposits or other obligations of, orguaranteed by, the depositoryinstitution; and subject to investmentrisk, including possible loss of theprincipal amount invested.These disclosure requirements wouldnot impose a new obligation on insureddepository institutions. In fact, theseprovisions are contained in the Federalbanking agencies’ ‘‘InteragencyStatement on Retail Sales of NondepositInvestment Products’’. FinancialInstitution Letter FIL 9–94 datedFebruary 17, 1994 (the ‘‘InteragencyStatement’’). Among other things theInteragency Statement provides thatinsured depository institutions shouldmake the aforementioned disclosures inall of their advertising and promotionalmaterials with respect to the retail saleof nondeposit investment products.It may be desirable to include theseprovisions in part 328 in light of therecent FDIC study which showed morethan a fourth of the institutionssurveyed are still failing to make basicdisclosures required under theInteragency Statement. 3 By includingthe advertising disclosure provisions inpart 328, such provisions would be ofgreater weight and enforceability.The FDIC invites comment as towhether codifying these disclosureprovisions in part 328 will moreeffectively minimize customerconfusion with respect to the insured ornon-insured status of the various3 ‘‘Survey of Nondeposit Investment Sales atFDIC-Insured Institutions’’, prepared for the FDICby Market Trends, Inc., dated May 5, 1996.