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Clearly, the Congress is the last best hope for the consumers of banks are to be prevented from using the FDIC insurance and logo as a tool to fool consumers.


Congress created the deposit insurance system and has an obligation to enact safeguards that protect not only the customer, but the integrity of the FDIC shield.

Thanks to Congress' support of Federal deposit insurance, consumers don't think twice about the safety of savings once placed in the hands of a banker.

It is the Congress that must take responsibility and enact legislation that will ensure that there can be no commingling -- in practice or perception of insured and uninsured activities of banks.

The hard simple fact is that too many American consumers do not understand that investment products like mutual funds and annuities sold by banks are not guaranteed by the Federal government.

We believe that the Congress must act swiftly and not wait for the rude awakening of stock market "correction" to enact safeguards to protect

against misleading marketing efforts by FDIC-insured institutions.

Consumers need four key protections:



(1) an insured institutions's name and logo must be
separate from the label of an uninsured product;

(2) the location of insured activity within a bank must
be clearly separated from the location of the marketing
of uninsured products;
(3) bank employees who handle insured funds must be
separate and distinct from those that peddle uninsured
products; and,
(4) consistent functional regulation of the securities
activities of insured institutions.
Before banks expand further into the mutual fund market in any

including the pending application by Mellon Bank Corporation to acquire the Dreyfus Corporation protections must be in place that will make certain that there


no misunderstanding in the public's mind about banks being some kind of "risk-free" zone for mutual funds.


Until proven protections are in place, we believe that it would be reckless to add to the problem by allowing banks to expand further into the securities business. There is a serious problem in the market. It is a modest demand that the industry and their regulators should get it right before letting banks further expand into the securities business.

Mr. Chairman, we believe a full moratorium should be placed on expansion of bank operations in the mutual fund business until:

(1) the Congress has a chance to enact statutory safeguards;
(2) the regulators come up with consistent, coordinated
and proven approaches to the problem; and,
13) the banking industry, itself, gets its act together
and agrees to eliminate practices however subtle or
overt that permit visions of government insurance
standing behind mutual funds to dance in the public's


The mixture of commercial banking and investment banking raises a multitude of questions about conflicts of interest, safety and soundness and consumer protection.

While Congress continues to debate how far banks should reach into the securities business, it has an obligation to provide consumer protections up front safeguards that will prevent FDIC logos and insurance from being transformed from symbols of personal and financial safety into deceptive marketing tools for bank-sold mutual funds.

Mr. DINGELL. Thank you very much, Mr. Lewis.
The gentleman from Colorado.

Mr. SCHAEFER. Thank you, Mr. Chairman. I thank the panel for being here, and Ms. Archuleta for coming such a long way.

I have a couple of questions, Ms. Colasanto, on number 21, page 38 of your survey, and I want to make sure I read this right, 88 percent of the people have trust in their own bank. Am I reading that right? This is what they said?

Ms. COLASANTO. That's correct.
Mr. SCHAEFER. In other words, whatever the bank says?

Ms. COLASANTO. Eighty-eight percent of bank customers said that they don't think they were ever misled or misinformed about the risks involved with bank accounts or investments at their bank.

Mr. SCHAEFER. So this looks like this is precisely the reason, or at least a lot of the reason, why we had the Lincoln Continental thing, simply because they trusted the bank.

Ms. COLASANTO. The customers were very trusting. That's right.

Mr. SCHAEFER. I would like to ask any of you, Mr. Simon in previous testimony said a number of things regarding how he thought we could improve on the situation. Ms. Crawford, you didn't mention one that he did and I wanted to ask you about it. That's a cooling off period. In other words, if a consumer went in, purchased mutual funds or whatever, and then turned around and decided later that they didn't want them, do you think that's a good idea?

Ms. CRAWFORD. I certainly would never object to a cooling off period in the context of helping consumers. Certainly that seems like a good idea.

One of the things that disturbs me is the idea that even with a cooling off period, by virtue of the fact that there are special circumstances that exist when sales are made on the premises of banks, it still may not be enough.

Mr. SCHAEFER. I'm not saying this is the only thing we do. I mean, this would just be an additional safeguard to be considered.

Ms. CRAWFORD. Certainly, in addition to the suggestions that others have made here today, along with ourselves, we would think that that would go a long way toward helping consumers.

Mr. SCHAEFER. Anyone else, please?

Mr. LEWIS. Congressman Schaefer, we would certainly endorse a cooling off period.

Mr. SCHAEFER. Seven days, 10 days, something like that?

Mr. LEWIS. The exact time period, I think we have not given a great deal of thought to, but we have the similar protections on the credit side, the Truth in Lending Act that permits consumers to have a right of recision. And we think it is very important for the consumer to be able to go home and contemplate an investment in an uninsured product without the bias of the heavy sales pitch of a bank salesperson who is operating with the incentive of commissions right in their face. And a cooling off period would be, as you point out, one element that would begin to make some more sense and ensure that consumers are making informed decisions.

Mr. SCHAEFER. Ms. Archuleta?

Ms. ARCHULETA. I think it sounds like a good idea. We have this privilege with hearing aids and they don't cost quite that much as you might be investing.

Mr. SCHAEFER. Very good correlation there.
Some of these questions, anyone please.

I understand that some of the organizations you represent have gathered samples of literature that banks are using to promote the sale of securities. Tell us what some of the problems are that you may have unraveled with this.

Ms. CRAWFORD. One of the major ones that we found in our collection of brochures and whatnot is this terrible confusion that exists with regard to there being no distinction between the insured and uninsured products. And oftentimes, banks will be selling through registered broker-dealers. But from the investor's standpoint, they may not know that. They cannot tell the difference between the bank and the registered entity because the names may be so similar.

There are just a myriad of problems that we do not know about because there have not been the kinds of customer complaints to date that we anticipate receiving down the road.

As has been noted previously, oftentimes investors have no idea who to complain to.

Mr. SCHAEFER. I understand. But you say as you will be seeing or you may be seeing down the road. Is that why—you have not received the complaints now, why would you see more down the road?

Ms. CRAWFORD. Well, we are hopeful that the publicity and media attention surrounding these hearings will cause consumers to become aware perhaps for the first time that there are regulators out there that would be interested in hearing from them.

Right now, we have reason to believe that if there is a problem, they either do not complain to anyone or perhaps at most complain to the financial institutions.

Mr. SCHAEFER. To the bank itself.
Ms. CRAWFORD. Right.
Mr. SCHAEFER. Ms. Archuleta?

Ms. ARCHULETA. I have an example picked up here in Washington just in the last few days. And this institution lists its investment options, which are about 12 of them here not insured by FDIC. There is a small number 1 listed after the first one and I look to the bottom. Number 1, there is nothing here, and I finally found it on the back in print half the size which talks about the disclosure that they are not FDIC insured.

Mr. SCHAEFER. So there is nothing on the front?

Ms. ARCHULETA. No. And actually each of these investment options should have been starred, it seemed to me, instead of the one small 1. An asterisk would have called my attention to it. And the disclosure should have been—the corresponding statement should have been at the bottom of the page and not at the very end of the brochure.

That is the kind of thing we are talking about that is elusive to older people who may not see that well. I can hardly read this myself.

Mr. SCHAEFER. Mr. Lewis?

Mr. LEWIS. Congressman Schaefer, in addition to the issues of disclosure, hidden disclosure, I did not bring but I would like to submit for the record, if that is possible, examples of institutions that use the same corporate logo across the insured institution or its sub. You will have the same logo for promotion of an uninsured mutual fund, stock opportunity, or an annuity investment oppor. tunity. And, here again, the institution is playing on the good will and the sense of security that has been built up associated with the insured institution's logo.

Mr. DINGELL. Without objection, the record will remain open for you to make that insertion.

[The following letter was received:]

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