[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 727 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 727

To amend the Federal Deposit Insurance Act to regulate the retail sale 
of nondeposit investment products by insured depository institutions to 
prevent customer confusion about the uninsured nature of the products, 
                        and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 30, 1995

  Mr. Gonzalez (for himself and Mr. Schumer) introduced the following 
  bill; which was referred to the Committee on Banking and Financial 
                                Services

_______________________________________________________________________

                                 A BILL


 
To amend the Federal Deposit Insurance Act to regulate the retail sale 
of nondeposit investment products by insured depository institutions to 
prevent customer confusion about the uninsured nature of the products, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Depository Institution Retail 
Investment Sales and Disclosure Act''.

SEC. 2. REGULATION OF RETAIL SALES OF NONDEPOSIT INVESTMENT PRODUCTS BY 
              INSURED DEPOSITORY INSTITUTIONS.

    The Federal Deposit Insurance Act is amended by adding at the end 
the following new section:

``SEC. 45. REGULATION OF RETAIL SALES OF NONDEPOSIT INVESTMENT PRODUCTS 
              BY INSURED DEPOSITORY INSTITUTIONS.

    ``(a) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Banking office.--The term `banking office' means any 
        office, or any part of any office, of an insured depository 
        institution that is commonly accessible to the general public 
        for the purpose of accepting or withdrawing deposits.
            ``(2) Nondeposit investment product.--The term `nondeposit 
        investment product'--
                    ``(A) means any investment product which is not a 
                deposit;
                    ``(B) includes shares issued by a registered 
                investment company; and
                    ``(C) does not include--
                            ``(i) any loan or other extension of credit 
                        by an insured depository institution;
                            ``(ii) any letter of credit; or
                            ``(iii) any other instrument or investment 
                        product specifically excluded from the 
                        definition of such term by regulations 
                        prescribed jointly by the Federal banking 
                        agencies.
    ``(b) Scope of Application.--
            ``(1) Application limited to retail activities.--The 
        provisions of this section shall not apply with respect to any 
        transaction (which is otherwise subject to the requirements of 
        this section) between--
                    ``(A) any insured depository institution, any 
                affiliate of such institution, or any other person who 
                is subject, directly or indirectly, to the requirements 
                of this section; and
                    ``(B) any other insured depository institution, any 
                affiliate of another insured depository institution, 
                any broker or dealer registered under the Securities 
                Exchange Act of 1934, any person who is, or meets the 
                requirements for, an accredited investor, as such term 
                is defined in section 2(15)(i) of the Securities Act of 
                1933, or any other customer who the appropriate Federal 
                banking agency determines, on the basis of the 
                financial sophistication of the customer, does not need 
                the protection afforded by this section.
            ``(2) No effect on other authority.--
                    ``(A) In general.--No provision of this section 
                shall be construed as limiting or otherwise affecting--
                            ``(i) any authority of the Securities and 
                        Exchange Commission, any self-regulatory 
                        organization, the Municipal Securities 
                        Rulemaking Board, or the Secretary of the 
                        Treasury under any Federal securities law; or
                            ``(ii) the applicability of any Federal 
                        securities law, or any rule or regulation 
                        prescribed by the Commission, any self-
                        regulatory organization, the Municipal 
                        Securities Rulemaking Board, or the Secretary 
                        of the Treasury pursuant to any such law, to 
                        any person.
                    ``(B) Definitions.--For purposes of this paragraph, 
                the following definitions shall apply:
                            ``(i) Federal securities law.--The term 
                        `Federal securities law' has the meaning given 
                        to the term `securities laws' in section 
3(a)(47) of the Securities Exchange Act of 1934.
                            ``(ii) Self-regulatory organization.--The 
                        term `self-regulatory organization' has the 
                        meaning given to such term in section 3(a)(26) 
                        of the Securities Exchange Act of 1934.
    ``(c) Prohibition on Misleading and Deceptive Practices.--
            ``(1) In general.--An insured depository institution may 
        not permit any person to engage in any practice, or employ any 
        advertising, at any office of, or on behalf of, the institution 
        which could mislead any person or otherwise cause a reasonable 
        person to reach an erroneous belief with respect to--
                    ``(A) the uninsured nature of any nondeposit 
                investment product sold, or offered for sale, by--
                            ``(i) the institution (in any capacity) or 
                        any affiliate of the institution; or
                            ``(ii) any other person in any office of, 
                        or on behalf of, the institution; or
                    ``(B) the investment risk associated with any such 
                product.
            ``(2) Contents of regulations.--The Federal banking 
        agencies shall jointly prescribe rules of fair practice 
        governing retail sales, including phone sales and direct mail 
        solicitations, of nondeposit investment products by, on behalf 
        of, or in any office of, any insured depository institution (in 
        any capacity) and any affiliate of such institution.
            ``(3) Rules of fair practice.--In prescribing regulations 
        pursuant to paragraph (2), the Federal banking agencies shall 
        take into account the Rules of Fair Practice of the National 
        Association of Security Dealers and any other applicable rules 
        or regulations the agencies determine to be appropriate.
    ``(d) Disclosure Requirements.--
            ``(1) Written disclosures.--An insured depository 
        institution shall require any person who sells or offers for 
        sale any nondeposit investment product in any office of, or on 
        behalf of, the institution to disclose, in writing, to any 
        person who seeks to purchase, or seeks an opinion or investment 
        advice about, any such product the following information:
                    ``(A) The nondeposit investment product is not 
                insured by the Federal Deposit Insurance Corporation, 
                the United States Government, or the institution.
                    ``(B) The product poses some investment risk and 
                the risk may involve the loss of principal such that 
                when the product is sold by the investor, it may be 
                worth less than when purchased by the investor.
                    ``(C) A clear description of the relationship 
                between the insured depository institution and any 
                other person which originated the product or is 
                otherwise directly or indirectly involved with 
                underwriting, selling, or distributing the product.
                    ``(D) If the nondeposit investment product consists 
                of shares issued by a registered investment company, 
                the relationship between the insured depository 
                institution, or any affiliate of the institution, and 
                the investment company.
            ``(2) Customer's signed statement relating to initial 
        purchase of nondeposit investment products.--
                    ``(A) In general.--An insured depository 
                institution shall require any person selling a 
                nondeposit investment product at any office of, or on 
                behalf of, the institution to obtain, at the time of 
                the initial purchase by any person of such product, a 
                separate statement, signed and dated by such person, 
                which contains the declaration that the purchaser has 
                received, read, and understood the disclosures required 
                under paragraph (1) with respect to such investment 
                product.
                    ``(B) Format of declaration.--The declaration 
                required under subparagraph (A) shall be in a 
                conspicuous and prominent location on a sheet of paper 
                which is separate from a written application or any 
                other document or paper which such person signs or 
                obtains in connection with the initial purchase of a 
                nondeposit investment product.
                    ``(C) Scope of application; timing.--The 
                declaration required to be obtained under subparagraph 
                (A) from any person shall be obtained for the initial 
                purchase of each type of nondeposit investment product 
                purchased by the person before each such transaction is 
                final.
            ``(3) Disclosures in the case of subsequent purchases 
        through electronic or telephone transfers.--In the case of a 
        purchase (other than an initial purchase) by any person of 
a nondeposit investment product through, or in conjunction with, an 
electronic funds transfer (as defined in section 903(6) of the 
Electronic Fund Transfer Act), a visual or oral notice may be provided 
(through the device used by the purchaser to carry out such transfer), 
in lieu of the written disclosure required under paragraph (1), 
reminding the purchaser that the nondeposit investment product is not a 
deposit which is insured by the Federal Deposit Insurance Corporation, 
the United States Government, or the institution and poses some 
investment risk.
            ``(4) Model forms.--The Federal banking agencies shall 
        jointly prescribe regulations establishing model forms which 
        meet or exceed the minimum requirements of this subsection.
            ``(5) Advertising and promotional material.--Any 
        advertisement, solicitation, or promotional or sales material 
        which relates to any nondeposit investment product which is 
        sold, or offered for sale, at any office of, or on behalf of, 
        an insured depository institution (including any solicitation 
        contained in any periodic statement issued by the institution), 
        and any sale confirmation notice or periodic statement issued 
        in connection with any such product, shall contain the 
        disclosures required under paragraph (1).
    ``(e) Location Requirements.--
            ``(1) Sale of products prohibited in area where deposits 
        are accepted.--
                    ``(A) In general.--No insured depository 
                institution may permit any part of any banking office 
                of the institution to be used for selling or offering 
                for sale, or for providing any opinion or investment 
                advice with respect to, any nondeposit investment 
                product.
                    ``(B) Physically segregated area.--The area in 
                which any nondeposit investment product is sold or 
                offered for sale, or any opinion or investment advice 
                with respect to such product is provided, shall not be 
                treated, for purposes of paragraph (1), as being part 
                of a banking office of an insured depository 
                institution if such area is physically segregated from 
                the part of the office where deposits are accepted or 
                withdrawn.
            ``(2) Posting of notice in area of sales.--An insured 
        depository institution shall post, in a conspicuous place in 
        that part of any office of the institution in which any 
        nondeposit investment product is sold or offered for sale, a 
        notice that--
                    ``(A) such part of the office is devoted to the 
                sale of nondeposit investment products which are not 
                insured by the Federal Deposit Insurance Corporation, 
                the United States Government, or the institution; and
                    ``(B) deposits are not accepted at that location.
    ``(f) Employee Sales, Training, and Compensation.--
            ``(1) Certain persons prohibited from selling nondeposit 
        investment products.--An insured depository institution may not 
        permit any person who accepts deposits from the public at any 
        office of, or on behalf of, an insured depository institution 
        to sell or offer to sell, or offer an opinion or investment 
        advice on, any nondeposit investment product.
            ``(2) Referral.--Notwithstanding paragraph (1), a person 
        who accepts deposits from the public at any office of, or on 
        behalf of, an insured depository institution may refer a 
        customer who seeks to purchase, or seeks an opinion or 
        investment advice on, any nondeposit investment product to a 
        person, or the phone number of a person, who sells or provides 
        opinions or investment advice on such product only if--
                    ``(A) the customer explicitly requests such 
                referral; and
                    ``(B) the person who accepts deposits--
                            ``(i) does not solicit such request;
                            ``(ii) discloses to the customer that such 
                        product is not insured by the institution, the 
                        Federal Deposit Insurance Corporation, or the 
                        United States Government, or the institution; 
                        and
                            ``(iii) does not receive any compensation 
                        for the referral.
            ``(3) Qualification requirements.--
                    ``(A) In general.--No insured depository 
                institution may permit any person to sell or offer for 
                sale, or provide an opinion or investment advice about, 
                any nondeposit investment product in any part of any 
                office of the institution, or on behalf of the 
                institution, unless such person--
                            ``(i) is registered with the Securities and 
                        Exchange Commission as a broker or dealer, as a 
representative of a broker or dealer, or as an investment adviser; or
                            ``(ii) meets qualification and training 
                        requirements which the Federal banking agencies 
                        jointly determine are equivalent to the 
                        training and qualification requirements 
                        applicable to a person who is registered with 
                        the Commission as a broker or dealer, as a 
                        representative of a broker or dealer, or as an 
                        investment adviser, as the case may be.
                    ``(B) Suitability of investment.--The training 
                required under subparagraph (A)(ii) shall include 
                training in making an accurate judgment about the 
                suitability of a particular nondeposit investment 
                product for a prospective customer.
            ``(4) Compensation standards.--The Federal banking agencies 
        shall prescribe regulations establishing minimum requirements 
        for insured depository institution compensation programs that 
        are designed to ensure that the programs do not operate as, and 
        do not have the effect of providing, an incentive for the sale 
        of nondeposit investment products to any customer in lieu of a 
        more suitable investment option for such customer.
    ``(g) Use of Names of Depository Institutions.--
            ``(1) In general.--No insured depository institution, and 
        no affiliate of any insured depository institution, may use or 
        permit any other person to use the name, title, or logo of such 
        institution or any word or design which is the same as or 
        similar to, or a variation of, the name, title, or logo of such 
        institution in connection with--
                    ``(A) the name of any investment company for which 
                the institution or affiliate acts as investment 
                adviser; or
                    ``(B) any nondeposit investment product--
                            ``(i) which is offered for sale by the 
                        institution or affiliate or by any other person 
                        at any office of, or on behalf of, the 
                        institution; or
                            ``(ii) with respect to which the 
                        institution, affiliate, or other person 
                        provides an opinion or investment advice.
            ``(2) Transition rule.--During the 6-month period beginning 
        on the date of the enactment of the Depository Institution 
        Retail Investment Sales and Disclosure Act, paragraph (1) shall 
        not apply to the use of the name, title, or logo of an insured 
        depository institution, or of any word or design which is the 
        same as or similar to, or a variation of, the name, title, or 
        logo of such institution, in a manner otherwise prohibited by 
        paragraph (1) if such use began before such date of enactment.
            ``(3) Post-transition use of prior names which are not 
        confusing or deceptive.--Notwithstanding paragraph (1) or (2), 
        if the use of the name, title, or logo of an insured depository 
        institution, or of a word or design which is the same as or 
        similar to, or a variation of, the name, title, or logo of such 
        institution, in a manner otherwise prohibited by paragraph (1) 
        began before the date of the enactment of the Depository 
        Institution Retail Investment Sales and Disclosure Act, the 
        appropriate Federal banking agency may permit such use to 
        continue after the end of the 6-month period referred to in 
        paragraph (2) if the agency determines, in writing and on a 
        case-by-case basis, that such use is unlikely to mislead any 
        person or otherwise cause a reasonable person to reach an 
        erroneous belief with respect to--
                    ``(A) the uninsured nature of any nondeposit 
                investment product sold, or offered for sale, by--
                            ``(i) the institution (in any capacity) or 
                        any affiliate of the institution; or
                            ``(ii) any other person in any part of any 
                        office of the institution; or
                    ``(B) the investment risk associated with any such 
                instrument or product.
    ``(h) Requirements Relating to Confidential Customer Information.--
            ``(1) Disclosures of confidential customer information 
        prohibited.--
                    ``(A) In general.--No insured depository 
                institution may disclose, directly or indirectly, any 
                confidential customer information to any person, 
                including any affiliate of such institution, without 
                the prior written consent of the customer.
                    ``(B) Records of customer consent.--Whenever any 
                insured depository institution obtains the prior 
                written consent of a customer for purposes of 
                subparagraph (A), the affiliate shall--
                            ``(i) obtain an acknowledgment of such 
                        consent by the customer, including the date the 
                        consent was acknowledged and the customer's 
                        name, address, and any applicable account 
                        number;
                            ``(ii) inform the customer that the consent 
                        (and the disclosure of the confidential 
                        information) may not be required as a condition 
                        for the performance of services for the 
                        customer; and
                            ``(iii) maintain records of compliance with 
                        clauses (i) and (ii).
                    ``(C) Customer defined.--
                            ``(i) In general.--For purposes of this 
                        subparagraph, the term `customer' means any 
                        person who, after the date of enactment of the 
                        Depository Institution Retail Investment Sales 
                        and Disclosure Act, establishes a deposit, 
                        trust, or credit relationship with an insured 
                        depository institution.
                            ``(ii) Treatment of certain deposits.--Any 
                        renewal of an account in an insured depository 
                        institution and any rollover of a deposit in 
                        any such account shall be treated as the 
                        establishment of a new deposit relationship for 
                        purposes of clause (i).
                    ``(D) Treatment of separately identifiable 
                department or division.--For purposes of this 
                paragraph, the term `affiliate' includes a separately 
                identifiable department or division of an insured 
                depository institution that is registered as an 
                investment adviser pursuant to the Investment Advisers 
                Act of 1940.
            ``(2) Confidential customer information defined.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `confidential customer information' means 
                financial information regarding any specific individual 
                which has been derived from any record of any insured 
                depository institution and pertains to the individual's 
                relationship with the institution.
                    ``(B) Certain information not included in 
                definition.--Notwithstanding any provision of paragraph 
                (1), the term `confidential customer information' shall 
                not include--
                            ``(i) any information obtainable from an 
                        unaffiliated credit bureau or similar entity or 
                        information obtainable in the ordinary course 
                        of business from any other unaffiliated entity;
                            ``(ii) any information provided to any 
                        credit bureau or similar entity in the ordinary 
                        course of business;
                            ``(iii) any information provided--
                                    ``(I) to any appropriate Federal 
                                regulatory agency; or
                                    ``(II) in accordance with the Right 
                                to Financial Privacy Act of 1978 to any 
                                Government authority (as defined in 
                                section 1101(3) of such Act); and
                            ``(iv) financial information the use of 
                        which (by an insured depository institution, 
                        any affiliate of such institution, or any agent 
                        of or contractor with such institution or 
                        affiliate) is limited to the performance of--
                                    ``(I) any function which is 
                                necessary to maintain a customer's 
                                existing deposit, trust, or credit 
                                account with the institution, including 
                                the collection of any amount due the 
                                institution by the customer with 
                                respect to any such account; or
                                    ``(II) due diligence evaluations in 
                                connection with the purchase or sale of 
                                loan assets or servicing rights.
            ``(3) Disclosure of additional customer information.--In 
        addition to any requirement or limitation contained in this 
        section, the appropriate Federal banking agency may prescribe 
        regulations limiting disclosures of nonpublic customer 
        information from any insured depository institution to any 
        affiliate of such institution, including an evaluation of the 
        creditworthiness of an issuer or other customer of that insured 
        depository institution or any affiliate of such institution.
    ``(i) Compliance Requirement.--
            ``(1) In general.--In conducting any examination of an 
        insured depository institution, the appropriate Federal banking 
        agency shall include an examination of the institution's record 
        of compliance with the provisions of this section and the 
        institution's procedures for ensuring such compliance.
            ``(2) Procedures.--An insured depository institution which 
        permits any person who is not an officer or employee of the 
        institution to sell or offer for sale, or provide an opinion or 
        investment advice on, nondeposit investment products on behalf 
        of the institution or in any part of any office of the 
        institution shall establish procedures to ensure that the 
        requirements of this section are met by such person.
            ``(3) Testers.--It is the sense of the Congress that the 
        Federal banking agencies should conduct testing of insured 
        depository institution practices with regard to selling, and 
        providing opinions and investment advice on, nondeposit 
        investment products using testers who, without an intent to 
        purchase such products, pose as prospective purchasers of such 
        products for the purpose of collecting evidence of violations 
        of this section and regulations prescribed under this 
        section.''.
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HR 727 IH----3