French Banks Hit Insurer's Money-Market Checking

LONDON - A European insurance company is offering the first interest-bearing checking account in France, and French bankers are none too happy about it.

The big banks, represented by the French Bankers Association, have accused Paris-based AGF Insurance Co. of conducting a misleading advertising campaign in promoting the new interest-bearing checking.

The account, Libractif, links bank checking to a savings plan based on a highly liquid money-market mutual fund. The structure effectively circumvents regulations banning checking interest.

The fund currently yields about 7%.

High-Profile Advertising

AGF, the third-largest insurer in France and the 13th-largest in Europe, is using its banking subsidiary, Banque du Phenix, to market the account. The company is using a high-profile campaign, for which it has assembled a sales force of 5,000.

The bankers association, in its official complaint to the Paris public prosecutor's office, claims AGF's advertising fails to make clear that the account is subject to several restrictive conditions. Also, the ads don't make clear that the account is operated by Banque du Phenix.

An AGF spokesman declined to comment, saying that the company had not been officially notified of the complaints.

Law Against Interest

French bankers say they cannot pay interest on checking accounts, because of a government regulation dating back to 1967. For the consumer, this restriction is balanced by the absence of fees and of minimum balances for transaction accounts.

These bankers contend that the French public has grown used to the present system of free checking, and that there would be howls of protest from consumer groups if charges were introduced.

At Merrill Lynch & Co. in London, analyst Sheila Garrard said the French banks are undoubtedly taking a "very political stance" on the issue as they try to fend off competition from nonbank companies like AGF.

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