FDIC – Notice of Proposed Rulemaking on Simplification of Deposit Insurance Rules for Trust and Mortgage Servicing Accounts

July 20, 2021 – Aims to make deposit insurance rules easier to understand for depositors and bankers, and to facilitate more timely insurance determinations for trust accounts in a bank failure. Enhance consistency of insurance coverage for mortgage servicing account deposits.

Proposed Rule
The rule would amend FDIC deposit insurance coverage rules contained under 12 CFR 330. Establish simpler formula for calculating coverage for revocable and irrevocable trusts. Both trust deposit insurance categories will merge into a new trust accounts category. Deposit owner trust deposits would be insured in amounts up to $250k per beneficiary. Not to exceed 5 beneficiaries, regardless of whether a trust is revocable or irrevocable. The cover is regardless of contingencies or the allocation of funds among the beneficiaries. Maximum coverage of $1,250,000 per owner, per insured institution for trust deposits. Additionally, mortgage servicers’ advances of principal and interest funds on behalf of mortgagors in a mortgage servicing account get insured up to $250k per mortgagor. Consistent with the principal, interest payments are collected directly from the mortgagor’s coverage.

Chairman McWilliams Remarks
McWilliams described challenges with trust documentation after IndyMac Federal Bank. Rules have not been simplified since 2008 and the agency receives over 10k questions a year from people trying to understand rules for trusts; described how rules address these issues. Stated when current rules for mortgage principal, interest was implemented in 2008, did not take into account the possibility funds may be paid by someone other than the borrower. The current proposal would provide consistent treatment regardless of the source of funds. Relayed that FDIC has also been exploring policy options for prepaid card accounts.

Effectiveness
Comments must be submitted in 60 days from pending publication in Federal Register.

For more information, visit www.fdic.gov.

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