A marketing snafu has produced some red faces at NationsBank of Texas and sent the company scrambling to withdraw a mail solicitation for home equity loans.

NationsBank Corp., the parent company of the Texas bank, recently issued a mailing to 1.6 million potential customers in its eight-state territory offering preapproved home equity loans of $5,000 to $25,000.

Letters that went out to 130,000 Texans referred only to "home improvement" loans in the main text, but mentioned in the postscript that "home equity" loans could also be used for education and debt consolidation.

Bad move. The Texas Constitution has outlawed general-purpose home equity loans since 1839, allowing second mortgages only for home improvements or to pay off a first mortgage. Chances are good the legislature will reverse that historic prohibition during its next session, but that's still two years away.

News of the solicitation angered community bankers in Texas, who found themselves confronted by customers wanting to know how NationsBank customers could receive home equity loans but they couldn't.

"It turned into a problem for a number of our members," said Christopher L. Williston, president and chief executive of the Independent Bankers Association of Texas, which represents 750 community banks around the state.

Mr. Williston fired off a letter of complaint to Texas Attorney General Dan Morales, who demanded that NationsBank retract the solicitation.

NationsBank complied, sending out new letters to those who had received the first solicitation. The second letter expresses regret for the mistake and observes that "Texas law does not currently allow us to offer general home equity loans."

Case closed, as far as the attorney general is concerned. "Since NationsBank did admit it was a mistake and did issue a letter of retraction, that seems to indicate a good faith effort to take care of the situation," said Ward Tisdale, a spokesman for Texas' top law enforcement officer.

Speaking for the independent bankers, Mr. Williston said he also now considers the matter "a dead issue."

But how did such a snafu occur in the first place?

NationsBank of Texas points the finger directly at ... the bank holding company's North Carolina headquarters office in Charlotte, N.C.

"The letters originated in Charlotte, where we have our marketing and mailing house," said spokeswoman Pam McQuitty in Dallas. "Somewhere during the approval process, there was a mistake."

When pressed, Ms. McQuitty conceded to "a lack of communication" between Charlotte and Dallas.

As far as Mr. Williston is concerned, that's just the point. His association had fought long and hard to make Texas the only state in the union to opt out of national interstate branching legislation.

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