Smart cards should be subject to consumer protection rules because the public does not understand how the products work.

That is the conclusion of Walter A. Effross, a law professor at American University, who conducted a legal analysis of the Fed's 1996 proposal to subject smart cards to Regulation E's consumer protections.

Mr. Effross finds that smart cards are governed by contract law, which means consumers must read the card agreement mailed out by the bank to learn their rights.

This process is ineffective because few consumers read their contracts. The public would be better served if regulators required banks to adequately disclose how these products work, including explaining consumer liability for stolen cards.

For a copy of "Putting the Cards Before the Horse," call Mr. Effross at 202-274-4210.

Proposals to let workers invest part of their Social Security contributions directly in the stock market may actually reduce the amount of money recipients get upon retirement.

That is the warning of Susan Miller, an economic analyst at the Federal Reserve Bank of New York, who writes that supporters of privatizing Social Security incorrectly assume investors will earn substantially more in the equities market.

Stock market returns historically are much more volatile than they have been during the past few years, and a massive influx of funds into the market would cause Treasury rates to rise, thereby reducing the gains stockholders receive, she writes.

The proposals also may not increase savings rates as expected. She writes that the public may simply shuffle funds from the Social Security pool to the stock market rather than investing more money.

For a copy of "The Market to the Rescue? The Promise-and the Price-of the New Social Security Investment Proposals," call 212-720-2892 or visit www.ny.frb.org.

Consumers continue to overwhelmingly rely on investment advisers when purchasing mutual funds, according to a study by the Forum for Investor Advice.

Professional advisers are used by 60% of all consumers. Only 27% buy mutual funds directly. The remaining 13% both use advisers and buy direct. The group also finds that 40% of investors purchase multiple funds through advisers while 15% buy multiple funds directly. The rest have purchased only a single fund.

For a copy of "Purchase Method Patterns of Mutual Fund Investors," call 301-656-7998.

Banking reform in Mexico will fail if the government uses monetary policy to prop up ailing institutions, writes William P. Osterberg, an economist at the Federal Reserve Bank of Cleveland.

Government interference in the market distorts the real price of credit, he writes. For instance, investors may not penalize banks for taking excessive foreign exchange risks if they believe the government will bail out institutions by artificially depressing interest rates.

Also, he writes that debtors may not be willing to pay back their loans if they expect the government to offer massive relief programs to consumers.

For a copy of "The Hidden Cost of Mexican Banking Reform," call 216-579- 3079 or visit www.clev.frb.org.

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