The Auto Club Group
1 Auto Club Drive
Dearborn, Michigan 48126-2694
John Bruno
Executive Vice President
General Counsel, Secretary &
Chief Human Resources Officer
(313) 336-1795 (office)
(313) 436-7304 (fax)
(614) 361-3028 (cell)
April 24, 2020
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17
th
Street NW
Washington DC 20429
RE: RIN 3064–AE94 “UNSAFE AND UNSOUND BANKING PRACTICES: BROKERED
DEPOSITS RESTRICTIONS”
Dear Sir:
Auto Club Trust, FSB (“ACT”) appreciates the opportunity to submit these comments in response
to the Notice of Proposed Rulemaking (“NPR”) on Unsafe and Unsound Banking Practices:
Brokered Deposits Restrictions (the “Proposed Rulemaking”) published by the Federal Deposit
Insurance Corporation (“FDIC”) in the Federal Register on February 10, 2020. We are fully
committed to managing consumer deposits in a prudent manner and we appropriately measure,
monitor, and control risks associated with those deposits that have traditionally been characterized
as brokered deposits. We urge the FDIC to adopt a proposed rule based on comments received in
response to the Proposed Rulemaking NPR.
Executive Summary
We recognize that the Brokered Deposit Restrictions were designed to safeguard the Deposit
Insurance Fund (“DIF”) from costly misbehavior and mitigate the safety and soundness risks to that
which have occurred through irresponsible bank failures, where brokered deposits have been
correlated with higher levels of rapid asset growth, higher levels of nonperforming loans, and a
lower proportion of core deposit funding.
We believe that the modernized final rule must distinguish those historically irresponsible behaviors
from deposits that consumers voluntarily seek to make with trusted organizations in the
marketplace. Shifts in consumer preferences have led customers over the past two decades to
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often bank where they shop for other products and services. Whether applying for credit cards or
making deposits, diversified organizations enjoy the loyalty and trust of customers that derive from
their strong affinity-based relationship with branded affiliates.
We are also an affinity-based operation, and as such, the agents of the bank’s affiliates are not
primarily engaged in placing deposits for the bank. Rather, their primary purpose is to offer
insurance products, travel services, and AAA membership benefits. Our agents receive de minimis
compensation for assisting our members to choose our bank for deposits. Doing business with the
bank is not a requirement for the main business of the agents. Thus, our agents’ activities do not
represent the risk to the FDIC that the historical Brokered Deposit Restrictions were designed to
mitigate, and therefore should be exempt from restriction under the modernized final rule.
Auto Club Trust, FSB
Auto Club Trust (“ACT”), a federal savings bank, is the banking affiliate of three related
grandfathered unitary savings and loan holding companies: Auto Club Insurance Association
(“ACIA”), a Michigan reciprocal, inter-insurance exchange that offers property and casualty and life
insurance products directly or through various subsidiaries, Auto Club Services, Inc., (“ACS”) the
management company and attorney-in-fact for ACIA and a wholly-owned subsidiary of The Auto
Club Group (“ACG”), a Michigan nonprofit membership organization headquartered in Dearborn,
MI. ACG serves approximately 12.5 million American Automobile Association (“AAA”) members
and insureds through 200 branded offices in 13 states and two U.S. territories: Florida, Georgia,
central and northern Illinois, northern Indiana, Iowa, Michigan, Minnesota, Nebraska, North
Carolina, North Dakota, South Carolina, Tennessee, Wisconsin, Puerto Rico, and the US Virgin
Islands. ACIA, ACG, and ACS each or collectively are referred to as “Holding Company.” ACG is
one of the largest motor clubs in AAA with approximately 9,500 employees and the only AAA club
to have a federally chartered savings bank.
ACT has its main office (licensed charter office) within the ACG Dearborn, Michigan headquarters
and a loan origination call center in St. Petersburg, Florida. At December 31, 2019, the bank had
65 full-time employees, total assets of $567 million, and capital of $60 million.
Comments on the Proposed Rule
ACT supports the fundamental goals of building a new framework to transform or modernize the
regulations that govern brokered deposits in a manner that meets the technological, convenience,
and service demands of today’s consumers. The need to update the brokered deposit regulation
has existed for years and will grow more pressing as digital technology changes, innovation and
the financial services industry continue to evolve.
We agree that updating the brokered deposit regulation would enhance consistent regulatory
supervision and enable regulated financial institutions (banks) and their affiliates with significant
affinity group customer bases to serve more effectively the convenience and deposit needs of their
customers. As noted in the proposal, insured institutions could benefit from the rule by having
greater certainty and greater access to funding sources that would no longer be designated as
brokered deposits, thereby easing their liquidity planning and reducing the likelihood that a liquidity
failure of an otherwise viable institution might be precipitated by the brokered deposit regulations.
Further, we concur that the proposed rule could incentivize the development of banking
relationships between banks and other firms.
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We acknowledge that the rule could result in greater access to funding sources that support
insured institutions' ability to provide credit. To the extent that the proposed rule supports greater
utilization of deposits currently classified as brokered deposits, but classified as non-brokered
under the proposed rule, increasing the funds available to insured depository institutions for
lending would benefit U.S. consumers.
Our board and senior management team strongly support the original intent of the brokered
deposit regulation: to mitigate the safety and soundness risks and costs to the Deposit Insurance
Fund (“DIF”) that have occurred through irresponsible bank failures, where brokered deposits have
been correlated with higher levels of rapid asset growth, higher levels of nonperforming loans, and
a lower proportion of core deposit funding. We concur that pragmatic revisions would align with
the transformation of the banking industry and, thus reduce the complexity, ambiguity, and burden
associated with the regulations.
With this background in mind, we offer the following comments for consideration:
III. Discussion of Proposed Rule
We welcome the FDIC’s interest in seeking comment on all aspects of its regulatory approach
to brokered deposits and interest rate restrictions, and in particular the following:
1. Question 1: Is the FDIC's proposed definition of "engaged in the business of placing
deposits” appropriate?
The FDIC’s proposed definition of "engaged in the business of placing deposits" is
appropriate, as it emphasizes the primary action of placing a deposit on behalf of a
consumer by mutual agreement with that consumer. Its particular application to brokered
deposits can be universally understood to contrast with “the business of facilitating the
placement of deposits” discussed further below.
2. Question 2: Is the FDIC's proposed definition of "engaged in the business of
facilitating the placement of deposits" appropriate?
We acknowledge that, in contrast to the first prong of the Deposit Broker definition, the
"facilitation" prong of the deposit broker definition refers to activities where the person does
not directly place deposits on behalf of its customers with an insured depository institution.
We understand that, historically, the term "facilitating the placement of deposits" has been
interpreted by staff at the FDIC to include actions taken by third parties to connect insured
depository institutions with potential depositors.
As described in greater detail in response to subsequent questions, we would urge that the
definition be further enhanced to clarify that the persons subject to this second prong are
“engaged in the business of facilitating” in a manner that is substantially more central to that
person’s business model as an independent third-party facilitator, versus an ancillary
aspect of a branded affiliate relationship under a shared corporate structure.
Auto Club Trust, FSB is a digital bank enjoying the loyalty and trust of our customers that
derives from their strong affinity relationship with our AAA-branded affiliates that offer
insurance, membership, emergency road service, and travel services. While that loyalty
encourages our affiliates’ customers to consider our bank’s deposit products, each of those
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affiliates’ business models are grounded in activities other than facilitating deposits. Unlike
actions taken by third parties to connect insured depository institutions with potential
depositors, our customers establish their own connection between their bank and its family
of affiliates as a trusted nationally recognized consumer brand.
3. Question 3: Is the FDIC's list of activities that would determine whether a person
meets the "facilitation" prong of the "deposit broker" definition appropriate?
In the context of an independent third party, the FDIC's list of activities that would determine
whether a person meets the "facilitation" prong of the "deposit broker" definition appears
generally appropriate.
As aforementioned, Auto Club Trust, FSB enjoy a customer-driven affinity relationship with
our co-branded affiliates. We do comply with federal and state laws with regard to notifying
consumers how we collect, share, and protect consumer personal information among
affiliates. As such, federal law gives consumers the right to limit some but not all sharing
among affiliates.
As such, we would propose that the first bullet point be enhanced to document the
distinction between independent persons who would share third-party information and
affiliates who lawfully collect, share, and protect customer information within the branded
family.
o The person directly or indirectly shares any third-party information with the insured
depository institution beyond the lawful sharing among affiliated companies related
by common ownership or control that have been previously disclosed to third-party
consumers.
4. Question 4: Has the FDIC provided sufficient clarity surrounding whether a third
party intermediary would meet the "facilitation" prong of the "deposit broker"
definition?
The FDIC has provided much clarity. We acknowledge that the proposed "facilitation"
definition is intended to capture activities that indicate that the person takes an active role in
the opening of an account or maintains a level of influence or control over the deposit
account even after the account is open. The Notice also clarifies that “[u]ltimately, the FDIC
believes that if the person is not engaged in any of the activities above, then the needs of
the depositor are the primary drivers of the selection of a bank, and therefore the person is
not facilitating the placement of deposits.”
Employees of our affiliates act neither as agents nor as nominees with regard to our
customers’ decisions to open a deposit account with our bank. As such, our employees do
not have the authority or ability to undertake an “active” role, nor exercise any level of
“influence or control” over the deposit account before, during, or after the consumer decides
to open the deposit account. The “third-party information” sharing bullet point, as currently
drafted, does not grant the lawful distinction that a co-branded affiliate enjoys despite
engaging in an active role, influence, or control. Thus, we would reiterate the
recommended clarification proposed in our responses to Questions 2 and 3 to avoid the
inadvertent characterization of our branded affiliates as “deposit brokers.”
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5. Question 5: Should the FDIC provide more clarity regarding whether any specific
types of deposit placement arrangements would or would not meet the "facilitation"
prong of the "deposit broker" definition? If so, please describe any such deposit
placement arrangements.
Deposits attracted from bank customers who are engaged in an arms-length consumer
transaction with an affiliate of the bank should not be considered brokered. Advances in
digital technology driven by consumer choice over the past three decades have led to
greater reliance by consumers on affinity relationships within trusted brands.
Inclusive of our aforementioned responses, Auto Club Trust, FSB is a digital bank enjoying
the loyalty and trust of our customers that derive from their strong affinity relationship with
our AAA-branded affiliates that offer insurance, membership, emergency road service, and
travel services. Our internal experience has confirmed that the historical safety and
soundness concerns with alleged “hot money” have not materialized as our deposits,
attracted through our own affiliates, have remained as stable (at 65% renewal) as those
deposits generated solely through bank contact. It has been noted that digital banks
funded totally with brokered deposits had the lowest failure rate during the last recession.
1
6. Question 6: Is it appropriate for a separately incorporated operating subsidiary to be
included in the IDI exception?
We agree that there is little practical difference between deposits placed at an Insured
Deposit Institution (“IDI”) by a division of the IDI versus deposits placed by a wholly owned
subsidiary of the IDI. We thus support the FDIC proposal that the IDI exception be
available to wholly owned operating subsidiaries. And as detailed in our response to
Question 7, we urge that the IDI exception be further enhanced to account for affiliates
related by common ownership or control who are subject to federal consumer information
sharing safeguards under the Gramm-Leach-Bliley Act (GLBA).
2
7. Question 7: Are the criteria for including an operating subsidiary in the IDI exception
too broad or too narrow?
The criteria for including an operating subsidiary in the IDI exception is appropriate and
should be further expanded to accommodate affiliates related by common ownership or
control in a family of companies.
The Notice acknowledged that the Bank Merger Act and Receivership law treat wholly
owned subsidiaries as separate from its parent IDI, whereas Section 23A and Section 23B
of the Federal Reserve Act and Call Reports treat wholly owned subsidiaries as part of the
parent IDI. Similarly, Section 23A of the Federal Reserve Act recognizes the nature of the
relationship between an IDI and its non-bank affiliates owned and controlled by a common
parent.
3
While acknowledging the appropriateness of allowing such intercompany
transactions, the regulation provides specific guidelines to enforce “terms and conditions
that are consistent with safe and sound banking practices.”
1
Sutton, G. (2018, December 11). Brokered deposits' bad rap is undeserved. American Banker, https://www.americanbanker.com/opinion/brokered-deposits-bad-rap-is-undeserved.
2
15 U.S. Code § 6801-6809.
3
12 U.S. Code § 371c.
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Implementing prudent criteria to govern the relationship between a bank and its affiliates in
the context of Brokered Deposits regulation would similarly serve the modernized affinity
interests of consumers while fostering safety and soundness and safeguarding the DIF.
8. Question 8: Is it appropriate to interpret the primary purpose of a third-party's
business relationship with its customers as not placement of funds if the third party
places less than 25 percent of customer assets under management for its customers,
for a particular business line, at depository institutions? Is a bright line test
appropriate? If so, is 25 percent an appropriate threshold?
We do not offer an opinion regarding this question, as non-bank affiliates in our family of
companies do not engage in the placement of customer funds at depository institutions.
Further, we have no person engaged in the business of either placing deposits for its
customers, or facilitating the placement of deposits for its customers (as clarified in
responses heretofore), at insured depository institutions, in the context of the "deposit
broker" definition.
9. Question 9: Should the FDIC specifically provide more clarity regarding what is
meant by customer assets under "management" by a broker dealer or third party?
We do not offer an opinion regarding this question, as we do not own a broker dealer nor
does any non-bank affiliate in our family of companies maintain customer assets under
“management” nor engage in the placement of customer funds at depository institutions.
Further, we have no person engaged in the business of either placing deposits for its
customers, or facilitating the placement of deposits for its customers (as clarified in
responses heretofore), at insured depository institutions, in the context of the "deposit
broker" definition.
10. Question 10: Is it appropriate to make available the primary purpose exception to
third parties whose business purpose is to place funds in transactional accounts to
enable transactions or make payments?
We do not offer an opinion regarding this question, as we do not maintain any third parties
whose business purpose is to place funds in transactional accounts to enable transactions
or make payments.
11. Question 11: Are there particular FDIC staff opinions of general applicability that
should or should not be codified as part of the final rule? If so, which ones, and
why?
Understandably, many historical FDIC staff opinions reflected the circumstances of prior
economic cycles, and their analyses evolved as relevant laws and regulations were
amended.
While our review of the FDIC staff opinions confirmed their general inapplicability to our
bank and non-bank affiliate structure, the FDIC had addressed the unique circumstances
involved in affinity-based relationships.
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Advisory Opinion FDIC--93—30, Affinity Groups Are Not Deposit Brokers for Purposes of
Sections 29 and 29A of the FDI Act and 12 C.F.R. § 337.6(a)
4
represents one such opinion
whose balanced approach should be codified as part of the final rule.
General Counsel Byrne’s analysis described an Affinity Group program that resonated with
our own organization’s embodiment of the AAA brand. Among the factors dispositive to the
conclusion that the Affinity Groups were neither "engaged in the business of placing
deposits" nor "facilitating the placement of deposits", and thus not "deposit brokers" within
the meaning of sections 29 and 29A of the FDI Act and section 337.6(a) of the regulations
included:
…
(b) none of the Affinity Groups directly markets the deposit products for the Bank;
(c) Affinity Group members who decide to place deposits with the Bank do so
directly with the Bank (the Affinity Groups do not receive funds from their members
for deposit with the Bank or otherwise process any member deposits);
(d) the Affinity Groups have exclusive relationships with the Bank and do not
endorse deposit products of other institutions;
(e) most, but not all, of the Affinity Groups receive royalties for endorsing the Bank's
deposit products, the amount of which represent a small fraction (in the order of ***)
of the market rates paid to others who are considered deposit brokers within the
meaning of section 29 of the FDI Act;
(f) historically, as reported by the Bank, the retention rate for endorsed money
market accounts obtained from Affinity Group members ranges from 80% to 85%
and for certificates of deposits from 60% to 75% and such accounts and deposits
are regarded by the Bank as core deposits of the Bank and are not used to replace
core deposit runoff; and
(g) the Affinity Groups do not know which members have made deposits with the
Bank, nor do they keep any records of the amounts, rates, or maturities of the
deposits.
Taken all together, the General Counsel had concluded, much as we do at AAA, that the
nature of the particular arrangement can reasonably be characterized as passive and
indirect and, therefore, outside the scope of the brokered deposits statute and FDIC's
regulations.
A similar analysis contained in Advisory Opinion FDIC--93—71 Whether Certain Affinity
Groups that Endorse the Marketing of Consumer Credit and Deposit Products of a National
Bank are Considered Deposit Brokers
5
lends support to codifying the intent of this affinity-
based affiliate distinction into the IDI exception without decreasing safety and soundness
nor failing to safeguard the DIF.
12. Question 12: Has the FDIC provided sufficient clarity regarding what will be
considered a "business line"? How can the FDIC provide more clarity? Are there
other factors that should be considered in determining an agent's or nominee's
business line(s)?
4
https://www.fdic.gov/regulations/laws/rules/4000-8190.html#fdic400093-30
5 https://www.fdic.gov/regulations/laws/rules/4000-8600.html#fdic400093-71
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We do not offer an opinion regarding this question, as we do not maintain a “business line”
or affiliate that is "engaged in the business of placing deposits" nor "facilitating the
placement of deposits", in accordance with our aforementioned responses. If the final rule
were to exclude affiliates within a bank’s family of companies from the IDI exception, then
additional scenarios expressly addressing that outcome should be included.
13. Question 13: Are there scenarios where a nonbank third party, as part of the same
business line, has different deposit placement arrangements with IDIs?
We do not offer an opinion regarding this question, as we do not engage agents or
nominees who place, or facilitate the placement of, deposits at our bank or at any other IDI.
If the final rule were to exclude affiliates within a bank’s family of companies from the IDI
exception, then additional scenarios expressly addressing that outcome should be included.
14. Question 14: Is the application process proposed for the primary purpose exception
appropriate? Are there ways the application process could be modified to make it
more effective or efficient?
We consider the proposed application process for the primary purpose exception both
appropriate, and effective and efficient as described.
15. Question 15: Is the application process for IDIs that apply on behalf of a third party
workable? Are there ways to improve the process for IDIs that apply on behalf of
third parties?
We suggest that if the final rule were to include an application process for IDIs to apply on
behalf of a third party, that such application be completed and submitted as a joint
application between those two parties to establish transparent accountability. This joint
responsibility would underscore the shared commitment to continued safety and soundness
and consumer depositor protection.
16. Question 16: Are there additional ways that the FDIC could better ensure that the
primary purpose exception is applied consistently, transparently, and in accordance
with the statute?
We consider the description of the intended application process to provide structure,
accountability, and transparency. The contemplated Ongoing Reporting (Question 24) and
IDI responsibility for monitoring third parties (Question 25) serve as additional controls to
promote safety and soundness, safeguard the DIF, and safeguard consumer depositors.
17. Question 17: Should some or all FDIC decisions on applications for the primary
purpose exception be publicly available? If so, in what format?
We support online public availability of FDIC primary purpose application decisions that
disclose information that would provide transparency regarding the process. As with other
FDIC publications, we encourage the Agency to maintain confidentiality around application
information that would constitute trade secrets, regulatory agency findings, or other
information deemed inappropriate for public disclosure.
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18. Question 18: Are there commonly known deposit placement arrangements not
mentioned above that are sufficiently simple and straightforward that applications
for such arrangements should receive expedited application processing, as
described above?
We do not offer an opinion on this question, as we do not engage in deposit placement
arrangements.
19. Question 19: Are there other deposit placement arrangements with respect to which
the FDIC should provide additional clarity as part of this rulemaking?
We do not offer an opinion on this question, as we do not engage in deposit placement
arrangements.
20. Question 20: Are the criteria for considering and approving primary purpose
applications for third parties that seek a primary purpose exception based on placing
less than 25 percent of customer assets under management at depository
institutions appropriate?
We do not offer an opinion on this question, as we do not engage in deposit placement
arrangements that involve customer assets under management.
21. Question 21: Are the criteria for considering and approving primary purpose
applications based on enabling transactions appropriate?
We do not offer an opinion on this question, as we do not engage in deposit placement
arrangements that involve enabling transactions.
22. Question 22: Are proposed requirements for the application process for business
relationships, other than those described in paragraphs (C)(1) and (C)(2),
appropriate?
We consider the proposed requirements for the application process for business
relationships, other than those described in paragraphs (C)(1) and (C)(2), appropriate.
23. Question 23: Is it appropriate to require reporting from nonbank entities that have
received approval for a primary purpose exception? Should the FDIC require IDIs to
report on behalf of such nonbank entities instead? Are there other ways the FDIC
should consider to ensure that applicants that receive the primary purpose exception
remain within the relevant standards?
We consider the requirement for nonbank entities that have received approval for a primary
purpose exception to provide reporting to the FDIC to be appropriate, as it will establish
transparent accountability by firms that want to engage in this consumer space. Reiterating
our response to Question 15, each subject nonbank entity should also provide that same
required reporting directly to the IDI with whom it is subject to a joint application. This joint
responsibility would underscore the shared commitment to continued safety and soundness
and consumer depositor protection.
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24. Question 24: How frequently should the FDIC require reporting?
We consider annual reporting sufficient, provided that the FDIC could require more frequent
reporting from a third party whose activity has become subject to Agency findings or other
heightened proceedings.
25. Question 25: Is it appropriate for the FDIC to require IDIs to monitor third parties for
eligibility for the primary purpose exception? Are there additional or better ways to
ensure that third parties continue to remain eligible for the exception?
We consider it appropriate for the FDIC to require IDIs to monitor third parties for eligibility
for the primary purpose exception. This monitoring may best be accomplished by requiring
third parties invoking eligibility for the primary purpose exception to engage in an
independent review using uniform testing and certification criteria, whose results are then
submitted both to the IDI and the FDIC included with its annual reporting.
26. Question 26: Is the FDIC's proposed definition of "accept" appropriate? Would there
be substantial operational difficulties for institutions to monitor additions into these
existing accounts? Is there another interpretation that would be more appropriate
and consistent with the statute?
We do not offer an opinion on this question, as we do not engage in placement
arrangements of non-maturity deposits.
Effects, Costs, and Benefits of the Proposed Rule
We would urge that the regulation be modernized to explicitly exempt deposits attracted to the
bank by the activities of its affiliates due to the strong loyalty expressed by our members to both
ACT and ACT’s affiliates above described. The consistent and strong renewal ratio for deposits
generated by ACT affiliates and, moreover, the fact that the deposits generated through existing
affiliate relationships with our members do not present the same risk to the insurance fund as
deposits generated through deposit listing services (which are not considered brokered) support
our responses. Such deposits generated through our affiliates have shown to perform at the same
level as any other deposit and certainly do not pose the high degree of risk to the insurance fund
that unaffiliated third-party deposit brokered accounts present.
The proposed rule, inclusive of our comments, would result in a reduction of costs without
increasing risk to consumers, safety and soundness, or the DIF. Additional benefits include
reduced internal reporting time and costs, improved net non-core funding ratios.
