FDIC Final Rule on Deposit Brokers and Interest Rate Restrictions

The FDIC’s Final Rule modifies the definition of deposit broker and certain calculations in connection with interest rate restrictions. It also explains when non-maturity deposits are solicited or accepted by less than well capitalized institutions for purposes of applying interest rate restrictions. The Final Rule goes into effect on April 1, 2021, and the extended compliance date is January 1, 2022.

Section 29 of the Federal Deposit Insurance Act prohibits less than well capitalized insured depository institutions from accepting or soliciting deposits from deposit brokers.  While Section 29 is entitled “Brokered Deposits,” this term is not defined. However the term deposit broker is defined. Section 29 and the FDIC’s implementing regulation define a deposit broker to be a person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions, or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties. Deposit brokers also include agents and trustees who establish deposit accounts to facilitate business arrangements with insured depository institutions to use the proceeds of the accounts to fund prearranged loans. These definitions are not exhaustive, and the FDIC has authority to issue regulations to further clarify the types of activities of a deposit broker.

While commenters raised concerns about the proposed definition of deposit broker, including the proposed definition of “facilitation,” the definition is intended to capture persons who take an active role in the opening of accounts, or maintain a level of influence or control over the deposit accounts even after the accounts have been opened. The Final Rule lists specific activities that would result in a person engaging in the business of facilitating the placement of deposits:

• The person has legal authority, contractual or otherwise, to close the account or move the third party’s funds to another insured depository institution;
• The person is involved in negotiating or setting rates, fees, terms, or conditions for the deposit account; or
• The person engages in matchmaking, as defined in the rule.

The Final Rule also amends the primary purpose exception to the definition of deposit broker. Under this exception, agents or nominees will not be considered deposit brokers if the primary purpose of their relationships with customers is not the placement of funds with depository institutions. The Final Rule identifies specific business relationships that would meet this exception. Agents and nominees can also apply for an exception if their relationships do not meet the exceptions listed.

The Final Rule also amends the FDIC’s methodology for calculating the national rate, the national rate cap, and the local rate cap in connection with interest rate restrictions, and defines when a less than well capitalized institution solicits or accepts non-maturity deposits for purposes of applying those restrictions.