a

GAO

United States General Accounting Office

Report to Congressional Committees

August 2003 FEDERAL DEPOSIT 

INSURANCE ACT

FTC Best Among 

Candidates to Enforce 

Consumer Protection 

Provisions

GAO-03-971
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

40 21

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 work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material 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 § 151(a). Congress subsequently 

redesignated section 40 as section 43, which is codified at 12 U.S.C. § 1831t (2000). See 

Housing and Community Development Act of 1992, Pub. L. No. 102-550 § 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 §§ 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

Nevada

Indiana

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. § 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. § 1786(e); 12 C.F.R. Parts 702 and 703. 

13 12 U.S.C. § 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. § 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. § 1831t (a). 

16 12 U.S.C. § 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. § 45 (2000). 

18 Id.; see also 15 U.S.C. § 57a(f)(3), a(f)(4). 

19 15 U.S.C. § 44. This provision is discussed later in this report. 

20 12 USC § 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. §§ 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 5a 3 60 

California 22 21b6 29 

Illinois 40 10c4 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. 

 bFor 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. 

 cFor 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. § 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. § 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. § 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. § 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. § 1831t(g). 

46 12 U.S.C. § 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. § 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. § 1831t(f)(2)(B). 

49 The FTC Act specifically excludes federally chartered credit unions from its provisions. 

15 U.S.C. § 45 (2000); See also 15 U.S.C. § 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. § 44. 

50 15 U.S.C. § 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. § 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. § 1012(b). 

53 15 U.S.C. §§ 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. § 57a. 

55 15 U.S.C. § 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. § 1831t(f)(2)(B). 

58 12 U.S.C. § 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 shutFTC 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. § 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. § 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. § 57b. 

62 15 U.S.C. § 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. § 1831t(a)(2), (e). 

67 12 U.S.C. § 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. § 46(g). 

69 15 U.S.C. § 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. § 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. § 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. §§ 1451, et. seq. (2000 & 2002 Supp.). 

74 15 U.S.C. § 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. § 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. § 227 (1991) § 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. § 227 (1991) § 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. § 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 NCUAb

 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-03-971 Federal Deposit Insurance Act 

Appendix IV: Comments from the Federal 

Trade Commission 
Appendix IV: Comments from the Federal Trade Commission 

Page 62 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 63 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 64 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 65 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 66 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 67 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 68 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 69 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 70 GAO-03-971 Federal Deposit Insurance Act 
Appendix IV: Comments from the Federal Trade Commission 

Page 71 GAO-03-971 Federal Deposit Insurance Act 
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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