Has your bank offered to sell you a mutual fund investment lately? Many have.
As a matter of fact, in the past few years, mutual funds have exploded into a $2 trillion market - from $135 billion in 1980 to $2.1 trillion in 1993.Mutual funds, which pay greater returns than regular bank accounts or CDs, are composed of stocks, bonds and money-market shares. Banks that used to fear the loss of deposits to mutual funds are now actively promoting these funds to customers. More than one-third of all banks market and sell these uninsured instruments.
Consumers need to understand that mutual funds and annuities are uninsured and that money can be lost, whereas bank deposits are insured and backed by the government.
I have introduced the "Depository Institution Retail Investment Sales and Disclosure Act," with my colleague, Rep. Charles Schumer, D-N.Y., to ensure that banks and the federal bank regulatory agencies put safeguards in place so that there is no doubt in the customer's mind that a mutual fund purchased at a bank - or anywhere else - is uninsured.
How this legislation will protect you:
- Full disclosure requires that the customer sign a form acknowledging that the bank has told the consumer that the investment product is not federally insured and that the investment could lose money.
- The bill specifically prohibits banks from using similar names or logos for its uninsured products. Currently, the bank regulators only say that a bank may not name an uninsured bank product after itself. However, customers may not be able to differentiate between the federally insured "American Bank" and its uninsured "American Bank Fund."
- The bill requires that banks physically segregate sales of uninsured mutual funds or annuities from the area where customers engage in everyday banking transactions, such as making deposits.
- The bank teller may not respond to customer requests for information on uninsured products but must refer them to specially trained employees. Currently, customers may be misled by the teller who deposits their federally insured money and then turns around and sells them an uninsured investment product.
- Currently, banks provide names and addresses of their customers, along with CD balances and maturity dates, to affiliated brokers who sell uninsured products. Federal regulatory agencies do not require written customer consent prior to the disclosure of any confidential information. Our bill does.
These reforms are necessary because federal regulatory agencies only "emphasize," "advise" or "recommend" action of the banks they oversee. Our legislation requires reforms necessary to protect customers.