Consumer Law

Has the FDIC Kept Savers' Returns Down?

By Jeff Sovern

On Saturday, Ron Lieber's "Your Money" column in the Times, headlined F.D.I.C.is Watching as a Bank Sets Rates, raised interesting consumer law issues.  Ally Bank is an online bank owned by GMAC Financial, a recipient of federal bailout funds.  Ally markets itself as a "better kind of bank" with "No minimum deposits,  No monthly fees.  No minimum balance.  No sneaky disclaimers."  Its web site asks what your bank is trying to sneak by you.  Its web site also promises that its rates "will always be among the top."  If that's true, it sounds like a pretty good bank.  But not, apparently, to other bankers.  According to the article, Ed Yingling of the American Bankers Association wrote to the FDIC complaining that Ally's high interest rates on CDs posed a danger to the industry and the FDIC. The claimed fear is that for Ally to make enough money to make good on the CDs, Ally will invest its money (or maybe that should read "the government's money") unwisely or make risky loans and end up not being able to meet its obligations on the CDs.   In any event, the article reported that Ally had lowered its rates twice in the preceding six days, though Ally refuses to say whether that's because of conversations it's had with the FDIC. Leiber, noting that the FDIC's last letter to GMAC expressed concern about its rates, complains that the FDIC's actions "seem a bit arbitrary," apparently because he believes the FDIC hasn't acted against other banks offering high rates. 

It seems strange that the FDIC should intervene to cause a bank to offer worse terms to consumers.  But I suppose that's the "safety and soundness" mission: that is, regulators want to insure that bank actions keep the banks safe and sound so the FDIC doesn't have to pay out on its promise to keep bank depositors whole.  But has the FDIC now forced Ally into false advertising?  It doesn't sound like Ally's rates are among the top any more.  Does that preserve Ally's safety and soundness?

Full post as published by CL&P Blog on June 15, 2009 (boomark / email).