Section 43 Requirements

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. Since being charged with the responsibility to enforce and implement  these requirements, FTC has requested Congress to prohibit it from  enforcing these provisions. As a result, depositors at some privately insured credit unions  may not be adequately informed that deposits at these institutions are not  federally insured. 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. The staff asserted that other federal  agencies are more qualified to carry out the section. NAFCU  officials believe that members of privately insured credit unions should be  adequately informed that deposits in these institutions are not federally  insured. Clarifying FTC’s Authority and Providing Some Flexibility Could Ensure Effective Enforcement of Section 43

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. 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. 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. This  would be inconsistent with a central purpose of the provision. Other major  contributors are acknowledged in appendix V.

Appendix I: Objectives, Scope, and Methodology

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. 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.
Why GAO Did This Study

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.

What GAO Found

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.