WASHINGTON - A bill introduced by two powerful members of the House Banking Committee would place the tightest restrictions yet on the way banks sell mutual funds and annuities in branches.

The measure, proposed last week by Committee Chairman Henry B. Gonzalez, D-Tex., and Rep. Charles Schumer, D-N.Y., is unlikely to win passage this year. Hearings haven't yet been scheduled, and no similar legislation is pending in the Senate.

Nevertheless, the proposal has drawn a swift reaction from bank groups that see it as the first salvo by lawmakers to limit mutual funds, a growth business for many banks.

Misrepresentation Is a Worry

The Gonzalez-Schumer bill would throw cold water on banks' growing use of rank-and-file employees to market investment product programs.

The bill would also put the kibosh on a popular marketing gambit: naming bank-managed mutual funds after the bank.

Regulators have already weighed in on many of these issues with detailed but flexible guidelines.

However, these guidelines "didn't go far enough" to satisfy the House Banking Committee members, said a banking committee staffer who worked on the Gonzalez-Schumer bill.

Preventive Medicine

The sponsors felt the time was right for Congress to step in. "This is a relatively new business for banks," the staff member said. "It's better for us to get in now."

Committee staffers say privately that they expect the bill to face a tough battle. Bank trade groups agree.

"I'm sure that banks will not want to be subject to rules that are so inflexible," said Richard Whiting, general counsel for The Bankers' Rountable. The trade group, formerly the Association of Reserve City Bankers, represents the nation's largest banks.

The American Bankers Association is already mounting an effort to temper the bill.

Measures Seen as Too Strict

"If there's a vote on it as is, we'll oppose it" said James McLaughlin, director of regulatory activities for the ABA.

Mr. McLaughlin said the ABA is "all for customer protection." But the bill's more stringent measures should be softened, he said. These measures include banning platform employees who open certificates of deposit from offering mutual funds.

Many banks leverage their limited employee resources by using platform people as investment products salespeople.

"A lot of times that's the only practical way for banks to have these programs," Mr. Whiting said.

Muzzle on Tellers

The proposed law would bar tellers from bringing up the subject of investment products. Tellers could let customers know about the availability of these products only if customers asked.

Rep. Gonzalez and Rep. Schumer also want to do away with banks' practice of connecting their names or logos to their proprietary mutual funds.

Banks whose funds have names similar to their own would have six months after the bill's passage to make changes.

Exceptions could be made only if regulators determine these names are not "misleading," the bill states.

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