WASHINGTON - House Banking Committee Chairman Henry B. Gonzalez said he is introducing legislation to regulate bank sales of mutual funds and other nondeposit instruments.
The measure, cosponsored by Rep. Charles E. Schumer, D-N.Y., would require banks and thrifts to take a number of steps to make sure customer understand that mutual funds purchased through banks are uninsured.
Among other steps, banks would have to make written disclosures and would be barred from selling mutual funds with names similar to their own. Tellers who accept deposits could not sell mutual funds, and investment products would have to be sold in an area "physically segregated" from the teller platform.
Public Viewed as Misinformed
"Unfortunately, many people still think that anything they get from a bank is federally insured," said Rep. Gonzalez. "We need to make sure that tellers and customer representative - who deal most frequently with customer - clarify the uninsured nature of these products."
Joe Belew, president of the Consumer Bankers Association, said many of the provisions in the Gonzalez bill reflect existing industry practices.
"But the devil is in the details," he warned, adding that the trade group had not yet had an opportunity to review the bill.
Mr. Belew expressed concern about the bill's requirement to physically separate employees who take deposits from those who sell investment products.
"That's a tough one," he said. "You can't have different offices, because that's not how banks are built."
Self-Policing Dismissed
Rep. Gonzalez also said that the guidelines issued by the regulatory agencies did not go far enough. And he said voluntary industry guidelines were insufficient as well.
"We cannot trust that banks' self-policing practices will avert another tragedy like the Lincoln Savings and Loan debacle of the 1980s, when thousands of mostly elderly customers bought uninsured bonds from the California savings and loans believing they were federally insured," he said.
Introduction of the mutual fund bill had been delayed as banking committee aides re-wrote it in an effort to keep the Housing parliamentarian from referring the bill jointly to the banking panel and the Energy and Commerce Committee.
Legislative Bottleneck
Jurisdictional rivalries between the two panels have delayed bills in the past.
A spokesman for Energy and Commerce said the hadn't seen the Gonzalez-Schumer bill yet, but added: "If it is similar to the draft that was circulating last week, it is likely we will ask for a referral."
On substantive matters, the differences between the two committee chairmen are not that great. Energy and Commerce Committee Chairman John D. Dingell, D-Mich., has also expressed concern about bank sales of mutual funds, particularly bond funds.
Rep. Dingell has asked the General Accounting Office to study the situation. Once the GAO reports back, the Michigan Democrat will decide whether to draft legislation, the committee spokesman said.
