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)
jgbruno@aaamichigan.com
April
1,
2019
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
and Interest Rate Restrictions"
Dear Sir:
Auto Club Trust, FSB ("ACT") appreciates the opportunity
to
submit these comments in
response to the Advanced Notice
of
Proposed Rulemaking ("ANPR")
on
Unsafe and
Unsound Banking Practices: Brokered Deposits
and
Interest Rate Restrictions (the
"Proposed Rulemaking") published by the Federal Deposit Insurance Corporation ("FDIC")
in
the
Federal Register on February 6, 2019.
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 develop a proposed rule based on comments
received
in
response to the Proposed Rulemaking ANPR.
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
Federal Deposit Insurance Corporation
Page 2
April
1,
2019
wholly-owned subsidiary
of
The
Auto Club Group ("ACG"}, a Michigan nonprofit
membership organization headquartered
in
Dearborn, Ml. ACG serves approximately 9.8
million American Automobile Association
("AAA")
members and insureds through 200
branded offices
in
11
states and two U.S. territories: Florida, Georgia, central and northern
Illinois, northern Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, 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 8,000 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,
2018, the bank had 83 full-time employees, total assets
of
$506 million, and capital
of
$54 million.
Comments on the Proposed Guidance
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 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.
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:
Ill. Request for Comments
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.
Are
there types
of
deposits that are currently considered brokered that
should
not
be considered brokered?
If
so, please explain why.
Federal Deposit Insurance Corporation
Page 3
April
1,
2019
Deposits attracted from bank customers who are engaged
in
an arm's-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.
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. 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 76%
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
As
noted in the Proposed Rulemaking, Section
29
of
the Federal Deposit
Insurance
Act
("FOi") does not directly define a "brokered deposit," but rather, it
defines a "deposit broker" for purposes
of
the restrictions. Thus, the meaning
of
the term "brokered deposit" turns upon the definition
of
"deposit broker."
Restrictions
on
brokered deposits are tied to the statutory definition
of
"deposit
broker" that Congress adopted
in
1989 as part
of
the legislative response to the
bank and thrift crisis. This "deposit broker" definition is subject to nine statutory
exceptions, including "9) an agent
or
nominee whose primary purpose is
not
the
placement
of
funds with depository institutions." The primary purpose exception
applies to "an agent or nominee whose primary purpose is not the placement
of
funds with depository institutions. When acting
in
that capacity, the third-party
agenUnominee is limited to the principal's goals and objectives, and is for a
substantial purpose other than to provide 1) deposit insurance,
or
2) a deposit-
placement service. In analyzing this principle, staff has considered whether the
deposit-placement activity is incidental to some other purpose.
The statute also provides an exception for an Insured Deposit Institution ("IOI") with
respect to funds placed with that
IOI.
Staff notes in the Proposed Regulation that
based
on
the plain language
of
the statute, staff has consistently applied this
exception strictly to the
IOI
itself and not to separately incorporated legal entities
such as other affiliates.
We
acknowledge the FDIC's admission that determining what constitutes a deposit
broker, and thus a brokered deposit, is very fact-specific and requires a close
review
of
the arrangement, the documents governing the arrangement, and the
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.
Federal Deposit Insurance Corporation
Page4
April
1,
2019
third-party's remuneration, among other things.
We
further understand that, given
the wide, and evolving, variety
of
third-party arrangements, FDIC staff review them
on a case-by-case basis, applying the statutory provisions to the facts and
circumstances presented, including whether the third-party's deposit placement
activities, if any, are directed at the general public as opposed to being directed
at
members (or "affinity groups")
or
clients.
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). 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.
2.
Are
there specific changes that have occurred
in
the financial
seNices
industry since the brokered deposits regulation was
adopted
that the FDIC
should
be
cognizant
of
as
it
reviews the regulation?
If
so,
please
explain.
Reiterating our response
to
the prior question, modern consumers have
demonstrated a preference
for
obtaining financial products from single-trusted
sources
in
a manner that would not have been contemplated during the passage
of
the Financial Institutions Reform, Recovery, and Enforcement Act
of
1989 (Fl RREA)
and the Federal Deposit Insurance Corporation Improvement
Act
of
1991 (FDICIA).
The safety and soundness concerns that FIRREA and FDICIA sought
to
resolve
predated even the Riegle-Neal Interstate Banking and Branching Efficiency
Act
of
1994. The banking environment has changed drastically since then and today
consumers increasingly seek
to
aggregate traditional banking, investment
management, and insurance products within single relationships that can be
conveniently managed from their computers, laptops, and mobile devices.
3.
Do institutions currently
have
sufficient clarity regarding who is
or
is
not
a
deposit
broker
and
what
is
or
is
not
a
brokered
deposit?
Are
there ways the
FDIC can provide additional clarity through updates
to
the brokered deposits
. regulation, consistent with the statute
and
the
policy
considerations
described above?
Federal Deposit Insurance Corporation
Page 5
April
1,
2019
Consistent with our prior comments, we would encourage the FDIC to broaden the
regulations that effectuate the statutory Insured Deposit Institution ("IOI") exception
beyond strictly the IDI itself to encompass separately incorporated legal entities that
share an affinity relationship such as other affiliates.
Auto Club Trust, FSB very much appreciates the FDIC's consideration
of
the comments
and would be pleased to answer any questions the FDIC
or
the staff might have.
rcb
Sent via email to comments@fdic.gov
