CFA RECEIVED Consumer Federation of America EBEROR AND COMMERCE J.S. HOUSE OF REPRESENTATIVES March 25, 1994 The Honorable John Dingell Subcommittee on Oversight and Investigations United States House of Representatives The Honorable Dan Schaefer Subcommittee on Oversight and Investigations United States House of Representatives Washington, DC 20515 Dear Chairman Dingell and Congressman Schaefer: At the March 2, 1994 Subcommittee hearing on the Mellon Bank Corporation and Dreyfus Corporation merger I discussed concerns that the Consumer Federation of America (CFA) has regarding the use by insured depositories of their corporate name and/or logo in the marketing of uninsured investment instruments like mutual funds. At that time, I promised to forward to the Subcommittee an example of such promotional materials. Please find these attached. These promotional materials were obtained from the Connecticut Avenue and K Street branch of Crestar National Bank in Washington, DC on February 1, 1994. The varied product brochures promoting insured savings instruments, uninsured investment instruments (both mutual funds and insurance annuities) and brokerage services of the institution were available to the public on the same branch lobby rack. As is evident, the promotional material for both insured and uninsured instruments utilizes the identical corporate logo of the insured institution. We believe that this type of retail promotional material blurs the distinction between the insured and uninsured status of savings and investment instruments marketed to retail bank customers. Promotional material that commingles the insured and uninsured status of financial instruments exacerbates consumer confusion about the risk associated with bank marketed instruments. 1424 16th Street, N.W., Suite 604 Washington, D.C. 20036 (202) 387-6121 Because the use of a common corporate name and/or corporate logo on insured and uninsured products fails to distinguish between instruments with Federal Deposit Insurance Corporation (FDIC) coverage and those without, the CFA advocates that the use of identical, common or similar names and logos should be banned in the sale of uninsured instruments by, or on the premises of, insured institutions. We believe that prohibiting the use of identical, common or similar names and logos would begin to clear the financial services market place of consumer confusion and uncertainty concerning insured status of retail financial instruments, assist consumers in the making of informed investment decisions and preserve the integrity of the FDIC insurance program. Should the Subcommittee require any additional assistance in its investigation into bank sale of securities products and the merger of Mellon Bank Corporation and the Dreyfus Corporation, please do not hesitate to contact us. Now you can invest No matter how much or how little you know about mutual funds, it's reassuring to know you can now invest in mutual funds through the very same company you've known for years. Crestar. The registered investment representatives you'll be dealing with at Crestar are experienced professionals. They'll listen to your needs and long-term plans. They'll get to know you, understand your financial goals and your willingness to take risks. Then, choosing from a variety of CrestFunds available, they'll help you put together a mutual fund investment program that helps meet your investment objectives. So, why wait to start investing? Come to any nearby Crestar office today, where you'll be well taken care of and completely at ease. CRESTAR Crestar Securities Corporation CrestFunds are sold through Crestar secunues Corporation, a wholly owned secures prokerage subsidiary of restar Financial Corporation CrestFunds are distributed by Fidery Distributers Corporation, which is not an aifhate of Cresuar Financial Corporation. CrestFunds are not insured by the Federal Deposu insurance Corporation (FDIC), the Federal Reserve Board or any other governmental agency and are not bank deposts or obliganons or guarameed by any financial institution. Crestar Bank serves as transfer agent and custodian for CreatFunds, Inc. and the Bank's owned investment advisory subsidiary, Capoline Investment Services Incorporated, serves as investment advisor to CrestFunds, Inc., for which they are competed. For more couplese micum about Crest Funds, including charges and expenses, call 1-800-451-9435 or contact your Crestar Investment Representative for a free prospectus. Be sure to read the prospectus carefully t Mr. SCHAEFER. Did any of you use testers? You have heard about testers. You heard about them in the previous witness' testimony. Did anybody use testers just to go in and see what somebody would say? Ms. CRAWFORD. Mr. Schaefer, we did, although we did not call them testers. We called them examiners. Mr. SCHAEFER. Called them what? Ms. CRAWFORD. Examiners. The Texas Securities Board in an effort to find out whether, first of all, problems existed in the State of Texas sent out several of its investigators to take a look at what is going on in their local banks and in banks State-wide. We sent them out with a series of instructions on things such as look for signage, look for physical proximity with teller operations, take copies of the brochures, sit down and present yourself as a typical person who perhaps has a CD that is about to become due and wishes to make an investment, and see what the people tell you at the bank. In my written remarks, you may notice that we gathered statistics with regard to what these individuals were told and what the signage situation was like, and it was very interesting. It paralleled very closely another survey that was done in New Jersey and a report that Consumer Reports came out with when they sent out testers. All of this evidences that we have problems, and the problems are not just regional; they are nationwide. I do not want to leave you with the impression that the problems might be confined to Texas or any one particular State. I think that all of these surveys that were conducted by testers or examiners or whatever have shown us the problems exist. Mr. SCHAEFER. Mr. Lewis, have you ever had any experience with that? Mr. LEWIS. We have not as an organization employed the use of testers at this point. I do note in my written statement a report of the New York City Department of Consumer Affairs, which conducted a tester-like study last year. That report-those testers discovered that of the institutions that they went into only 40 percent of those institutions revealed to the Department of Consumer Affairs personnel that a mutual fund investment was not an insured investment opportunity. The statement goes through some other data that was discovered in the course of that testing-like program, but we have not ourselves. It is something we have contemplated, I think. As the previous panel bore out, though, an effective testing program is something that needs to be very carefully thought through, and is one that institutions seem to evade if they know it is coming around the block. It is something that we very much feels should be part of an ongoing enforcement effort by appropriate regulatory agencies that have jurisdiction over bank sales of uninsured products. It is a detection as well as a deterrent tool. Mr. SCHAEFER. Mr. Archuleta, has AARP done anything along these lines? Ms. ARCHULETA. I am not aware of anything. Mr. SCHAEFER. OK. One final thing, Mr. Chairman. I know my time is about up here, but on this Mellon-Dreyfus situation, Ms. |