Now you can invest No matter how much or how little you know about mutual funds, it's reassuring to know you can now invest in mutual funds through the very same company you've known for years. Crestar. The registered investment representatives you'll be dealing with at Crestar are experienced professionals. They'll listen to your needs and long-term plans. They'll get to know you, understand your financial goals and your willingness to take risks. Then, choosing from a variety of CrestFunds available, they'll help you put together a mutual fund investment program that helps meet your investment objectives. So, why wait to start investing? Come to any nearby Crestar office today, where you'll be well taken care of and completely at ease. CRESTAR Crestar Securities Corporation Crest Funds are sold through Cresuar secunties Corporation, a wholly owned securities brokerage subsidiary of restar Financial Corporation CrestFunds are dimbuted by Fidery Desinbuses Corporation, which is not an affiliate of Crestar Financial Corporation. CrestFunds are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other governmental agency and are not bank deposts or obligations or guaranteed by any financial insutution. Crestar Bank serves as transfer agent and custodian for CreatFunds Inc. and the Bank's wholly owned investment advisory subsidiary, Capoline Investment Services Incorporated, serves as investment advisor to CrestFunds, lac, for which they are compensed. For more complete norm about Crest Funds, including charges and expenses, call 1-800-451-5435 or contact your Crestar investment Representative for a free prospectus. Be sure to read the prospectus carefully before fundature come memek chiching the critical D Mr. SCHAEFER. Did any of you use testers? You have heard about testers. You heard about them in the previous witness' testimony. Did anybody use testers just to go in and see what somebody would say? Ms. CRAWFORD. Mr. Schaefer, we did, although we did not call them testers. We called them examiners. Mr. SCHAEFER. Called them what? Ms. CRAWFORD. Examiners. The Texas Securities Board in an effort to find out whether, first of all, problems existed in the State of Texas sent out several of its investigators to take a look at what is going on in their local banks and in banks State-wide. We sent them out with a series of instructions on things such as look for signage, look for physical proximity with teller operations, take copies of the brochures, sit down and present yourself as a typical person who perhaps has a CD that is about to become due and wishes to make an investment, and see what the people tell you at the bank. In my written remarks, you may notice that we gathered statistics with regard to what these individuals were told and what the signage situation was like, and it was very interesting. It paralleled very closely another survey that was done in New Jersey and a report that Consumer Reports came out with when they sent out testers. All of this evidences that we have problems, and the problems are not just regional; they are nationwide. I do not want to leave you with the impression that the problems might be confined to Texas or any one particular State. I think that all of these surveys that were conducted by testers or examiners or whatever have shown us the problems exist. Mr. SCHAEFER. Mr. Lewis, have you ever had any experience with that? Mr. LEWIS. We have not as an organization employed the use of testers at this point. I do note in my written statement a report of the New York City Department of Consumer Affairs, which conducted a tester-like study last year. That report-those testers discovered that of the institutions that they went into only 40 percent of those institutions revealed to the Department of Consumer Affairs personnel that a mutual fund investment was not an insured investment opportunity. The statement goes through some other data that was discovered in the course of that testing-like program, but we have not ourselves. It is something we have contemplated, I think. As the previous panel bore out, though, an effective testing program is something that needs to be very carefully thought through, and is one that institutions seem to evade if they know it is coming around the block. It is something that we very much feels should be part of an ongoing enforcement effort by appropriate regulatory agencies that have jurisdiction over bank sales of uninsured products. It is a detection as well as a deterrent tool. Mr. SCHAEFER. Mr. Archuleta, has AARP done anything along these lines? Ms. ARCHULETA. I am not aware of anything. Mr. SCHAEFER. OK. One final thing, Mr. Chairman. I know my time is about up here, but on this Mellon-Dreyfus situation, Ms. Crawford, was there anything in there pertaining to that? Did you look at the Mellon Bank at all? Was that one that you tested? Ms. CRAWFORD. No, sir. We did not test that bank. Mr. SCHAEFER. Mr. Chairman, thank you very much. I yield back. Mr. DINGELL. The Chair thanks the gentleman. Members of the panel, the committee is very grateful to you for your presence here. I have a few questions that I would like to direct at you at this particular time. Perhaps I could direct all of these questions to all members of the panel so that you each have the opportunity to address then in such order as you might choose. You have talked about the research studies, or sending testers into banks, or taking polls. Starting with you, Ms. Crawford, what are your feelings about the situation that you are finding, and what do you feel the implications of it might be? Ms. CRAWFORD. Well, as you might expect my answer is that in my view the situation is very bad. It is a frightening situation, and I think it has very far-reaching implications. The thought that we have many, many millions of Americans who are dissatisfied with the interest rate that they are receiving on their insured investments are now switching over to uninsured investments on the premises of banks, where perhaps they have been doing business for many decades or their entire lives, where they are not asked any questions that lead to a determination of whether switching to an uninsured product would be suitable for them, where they may have no reason on earth to believe that what they are going to switch into does not have the full faith and credit of the United States behind it. It is just frightening. We have heard from the Lincoln Savings prosecutorial group, and I think that many of the things they had to say were analogous to things that people could be saying to this committee several years hence if something is not done. Mr. SCHAEFER. Thank you. Ms. Archuleta? Ms. ARCHULETA. I think I just wanted to add that I live in a high-rise of senior citizens of about 100 people. It is always amazing to me that they continue to go to the bank that is clear across town because they know the people and they trust them. So I think we need to do many of the things that we have talked about this morning in order to protect those people. Sometimes when I discuss this issue with my neighbors and I talk about uninsured and insured products, and they will say, "Well, I wonder if my mutual funds are insured?" And I say, well, no they are not, and they say, "Oh," but they do not say anything more. Many people are unwilling to tell you that they have lost money because maybe they think $2,000 was really not too much, but it was really quite a bit in their terms. Mr. SCHAEFER. Ms. Colasanto, would you like to tell us whatever you might have in mind on that? Ms. ČOLASANTO. Sure. I think the survey evidence is very clear that bank customers are confused. They simply are not aware or have the wrong impression about whether their investments that they purchase at banks are FDIC insured. I think one other thing that came out in our study that I want to note is who is buying these products. It is people at the lower end of the income scale who are purchasing these products as well as people who have a little bit more of an income cushion, so the implications for the individuals who are taking on this risk could be great. Mr. SCHAEFER. Thank you. Mr. Lewis? Mr. LEWIS. Obviously, we believe that there is a very serious. problem here. We have got millions of consumers out there who are willingly and unwillingly placing their savings at risk. We are not talking about spare change here. It is probably on the order of $2 billion a week in consumer savings that are being put into uninsured investment instruments on or through bank sales programs, and that number is probably going up as each week progresses. So we have a very serious concern about whether or not the channeling of these savings is being done in an informed manner. As I noted in my oral statement, this certainly brushes against whether or not we are, as a Nation, retaining the integrity of the FDIC program; at what cost this activity and the level of confusion and the level of confusion has for the integrity of the FDIC program. Finally, we are very much concerned about the lack of consumer protection programs at the banking regulatory agencies. This has not been their traditional focus. In fact, historically they have been very poor performers in consumer protection, and have no track record really in investor protection. I noted some of the very serious problems we have with their current guidelines, which are only guidelines; these are not mandates. There are, as evidence presented here, very serious compliance problems with those guidelines, much less their basic inadequacies, but I think we are very concerned about consumers making uninformed decisions and the lack of an effective consumer compliance and enforcement program amongst banking regulatory agencies. Mr. DINGELL. Can you give me your thoughts now, please, members of the panel. What are your thoughts regarding security salespersons at banks in gaining access to individual bank records and customer lists. Do you have a feeling on that, Ms. Crawford? You are regulatory, and you understand these matters very well. What are your thoughts? MS CRAWFORD. Well, it seems entirely inappropriate. I certainly think that if the vast majority of Americans were aware that that could occur, they would be up in arms and would probably be storming your office. I think there is a level of innocence, if you will, about that kind of activity. It is something that makes it very difficult for securities regulators to deal with, though, because, as Chairman Levitt pointed out this morning, securities regulators for the most part can only go so far. They can only get certain records. If the bank itself is engaging in the activities, there is nothing under the securities law that allows the securities regulator to obtain that sort of information and see if it is being misused. |