[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 633 Introduced in Senate (IS)]

  1st Session
                                 S. 633

To amend the Federal Deposit Insurance Act to provide certain consumer 
    protections if a depository institution engages in the sale of 
        nondeposit investment products, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               March 28 (legislative day, March 27), 1995

   Mr. Pryor introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
To amend the Federal Deposit Insurance Act to provide certain consumer 
    protections if a depository institution engages in the sale of 
        nondeposit investment 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 ``Bank Customer Confidentiality and 
Protection Act of 1995''.

SEC. 2. CUSTOMER PROTECTIONS REGARDING NONDEPOSIT INVESTMENT PRODUCTS.

    (a) Amendment to the Federal Deposit Insurance Act.--Section 18 of 
the Federal Deposit Insurance Act (12 U.S.C. 1828) is amended by adding 
at the end the following new subsection:
    ``(q) Safeguards for Sale of Nondeposit Investment Products.--
            ``(1) Definitions.--For purposes of this subsection--
                    ``(A) the terms `broker', `dealer', and `registered 
                broker or dealer' have the same meanings as in section 
                3 of the Securities Act of 1934;
                    ``(B) the term `customer'--
                            ``(i) means any person who maintains or 
                        establishes a deposit, trust, or credit 
                        relationship with an insured depository 
                        institution;
                            ``(ii) includes any person who renews an 
                        account in an insured depository institution 
                        and any person who rolls over a deposit in any 
                        such account; and
                            ``(iii) any person who contacts an insured 
                        depository institution, in person or otherwise, 
                        for the purpose of inquiring about or 
                        purchasing a nondeposit investment product;
                    ``(C) 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;
                    ``(D) the term `nondeposit investment product'--
                            ``(i) includes any investment product that 
                        is not a deposit; and
                            ``(ii) 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 after 
                                consultation with the Securities and 
                                Exchange Commission;
                    ``(E) the term `nonpublic customer information'--
                            ``(i) means information regarding any 
                        person which has been derived from any record 
                        of any insured depository institution and 
                        pertains to the person's relationship with the 
                        institution, including the provision or 
                        servicing of a credit card; and
                            ``(ii) does not include information about a 
                        person that could be obtained from a credit 
                        reporting agency that is subject to the 
                        restrictions of the Fair Credit Reporting Act 
                        by a third party that is not entering into a 
                        credit relationship with the person, but that 
                        otherwise has a legitimate business need for 
                        that information in connection with a business 
                        transaction involving the person; and
                    ``(F) the term `self-regulatory organization' has 
                the same meaning as in section 3(a)(26) of the 
                Securities Exchange Act of 1934.
            ``(2)  Misrepresentation of guarantees.--It shall be 
        unlawful for any insured depository institution sponsoring, 
        selling, or soliciting the purchase of any nondeposit 
        investment product to represent or imply in any manner 
        whatsoever that such nondeposit investment product--
                    ``(A) is guaranteed or approved by the United 
                States or any agency or officer thereof; or
                    ``(B) is insured under this Act.
            ``(3) Customer disclosure.--
                    ``(A) In general.--An insured depository 
                institution shall, concurrently with the opening of an 
                investment account by a customer or with the initial 
                purchase of a nondeposit investment product by a 
                customer, prominently disclose, in writing, to that 
                customer--
                            ``(i) that nondeposit investment products 
                        offered, recommended, sponsored, or sold by the 
                        institution--
                                    ``(I) are not deposits;
                                    ``(II) are not insured under this 
                                Act;
                                    ``(III) are not guaranteed by the 
                                insured depository institution; and
                                    ``(IV) carry risk of a loss of 
                                principal;
                            ``(ii) the nature of the relationship 
                        between the insured depository institution and 
                        the broker or dealer;
                            ``(iii) any fees that the customer will or 
                        may incur in connection with the nondeposit 
                        investment product;
                            ``(iv) whether the broker or dealer would 
                        receive any higher or special compensation for 
                        the sale of certain types of nondeposit 
                        investment products; and
                            ``(v) any other information that the 
                        Federal banking agencies jointly determine to 
                        be appropriate.
                    ``(B) Customer acknowledgment of disclosure.--
                            ``(i) In general.--Concurrently with the 
                        opening of an investment account by a customer 
                        or with the initial purchase of a nondeposit 
                        investment product by a customer, an insured 
                        depository institution or other person required 
                        to make disclosures to the customer under 
                        subparagraph (A) shall obtain from each such 
                        customer a written acknowledgment of receipt of 
                        such disclosures, including the date of receipt 
                        and the name, address, account number, and 
                        signature of the customer.
                            ``(ii) Records of customer 
                        acknowledgement.--An insured depository 
                        institution shall maintain appropriate records 
                        of the written acknowledgement required by this 
                        subparagraph for an appropriate period, as 
                        determined by the Corporation. Such record 
                        shall include the date on which the 
                        acknowledgment was obtained and the customer's 
                        name and address.
                            ``(iii) Duration of acknowledgement.--
                        Written acknowledgement shall not be considered 
                        valid for purposes of this subparagraph for a 
                        period of more than 5 years, beginning on the 
                        date on which it was obtained.
                    ``(C) Prohibition on inconsistent oral 
                representations.--No employee of an insured depository 
                institution shall make any oral representation to a 
                customer of an insured depository institution that is 
                contradictory or otherwise inconsistent with the 
                information required to be disclosed to the customer 
                under this paragraph.
                    ``(D) Model forms and regulations.--The Federal 
                banking agencies, after consultation with the 
                Securities and Exchange Commission, shall jointly issue 
                appropriate regulations incorporating the requirements 
                of this paragraph. Such regulations shall include a 
                requirement for a model disclosure form solely for such 
                purpose to be used by all insured depository 
                institutions incorporating the disclosures required by 
                this paragraph.
            ``(4) Referral compensation.--A one-time nominal referral 
        fee may be paid by an insured depository institution to any 
        employee of that institution who refers a customer of that 
        institution either to a broker or dealer or to another employee 
        of that insured depository institution for services related to 
        the sale of a nondeposit investment product, if the fee is not 
        based upon whether or not the customer referred makes a 
        purchase from the broker, dealer, or other employee.
            ``(5) Prohibition of joint marketing activities.--No 
        nondeposit investment product may be offered, recommended, or 
        sold by a person unaffiliated with an insured depository 
        institution on the premises of that institution as part of 
        joint marketing activities, unless the person marketing such 
        nondeposit investment product--
                    ``(A) prominently discloses to its customers, in 
                writing, in addition to the disclosures required in 
                paragraph (3), that such person is not an insured 
depository institution and is separate and distinct from the insured 
depository institution with which it shares marketing activities; and
                    ``(B) otherwise complies with the requirements of 
                this subsection.
            ``(6) Limitations on advertising.--
                    ``(A) Misleading advertising.--No insured 
                depository institution may employ any advertisement 
                that would mislead or otherwise cause a reasonable 
                person to believe mistakenly that an insured depository 
                institution or the Federal Government is responsible 
                for the activities of an affiliate of the institution, 
                stands behind the affiliate's credit, guarantees any 
                returns on nondeposit investment products, or is a 
                source of payment of any obligation of or sold by the 
                affiliate.
                    ``(B) Names, letterheads, and logos.--In offering, 
                recommending, sponsoring, or selling nondeposit 
                investment products, an insured depository institution 
                shall use names, letterheads, and logos that are 
                sufficiently different from the names, letterheads, and 
                logos of the institution so as to avoid the possibility 
                of confusion.
                    ``(C) Separation of literature.--All sales 
                literature related to the marketing of nondeposit 
                investment products by an insured depository 
                institution shall be kept separate and apart from, and 
                not be commingled with, the banking literature of that 
                institution.
            ``(7) Limitations on solicitation.--The place of 
        solicitation or sale of nondeposit investment products by an 
        insured depository institution shall be--
                    ``(A) physically separated from the banking 
                activities of the institution; and
                    ``(B) readily distinguishable by the public as 
                separate and distinct from that of the institution.
            ``(8) Sales staff requirement.--Solicitation for the 
        purchase or sale of nondeposit investment products by any 
        insured depository institution may only be conducted by a 
        person--
                    ``(A) who--
                            ``(i) is a registered broker or dealer or a 
                        person affiliated with a registered broker or 
                        dealer; or
                            ``(ii) has passed a qualification 
                        examination that the appropriate Federal 
                        banking agency, in consultation with the 
                        Securities and Exchange Commission, determines 
                        to be comparable to those used by a national 
                        security exchange registered under section 6 of 
                        the Securities Exchange Act of 1934, or a 
                        national securities association registered 
                        under section 15A of that Act, for persons 
                        required to be registered with the exchange or 
                        association; and
                    ``(B) whose responsibilities are restricted to such 
                nondeposit investment products.
            ``(9)  No favoring of captive agents.--No insured 
        depository institution may directly or indirectly require, as a 
        condition of providing any product or service to any customer, 
        or any renewal of any contract for providing such product or 
        service, that the customer acquire, finance, negotiate, 
        refinance, or renegotiate any nondeposit investment product 
        through a named broker or dealer.
            ``(10)  Restrictions on use of nonpublic customer 
        information.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no insured depository institution may 
                use or disclose to any person any nonpublic customer 
                information for the purpose of soliciting the purchase 
                or sale of nondeposit investment products.
                    ``(B) Exception based on disclosure.--An insured 
                depository institution may use or disclose nonpublic 
                customer information for the purpose of soliciting the 
                purchase or sale of nondeposit investment products if, 
                before such use or disclosure--
                            ``(i) the customer gives explicit written 
                        consent to such use or disclosure; and
                            ``(ii) such written consent is given after 
                        the institution has provided the customer with 
                        written disclosure that--
                                    ``(I) the information may be used 
                                to target the customer for marketing or 
                                advertising for nondeposit investment 
                                products;
                                    ``(II) such nondeposit investment 
                                products are not guaranteed or approved 
                                by the United States or any agency 
                                thereof; and
                                    ``(III) such nondeposit investment 
                                products are not insured under this 
                                Act.
                    ``(C) Records of customer consent.--An insured 
                depository institution shall maintain appropriate 
                records of the written consent required by subparagraph 
                (B) for an appropriate period, as determined by the 
                Corporation. Such record shall include the date on 
                which the consent was signed and the customer's name 
                and address.
                    ``(D) Duration of consent.--Written consent shall 
                not be considered valid for purposes of this paragraph 
                for a period of more than 5 years, beginning on the 
                date on which it was obtained.
                    ``(E) Additional restrictions.--The Corporation 
                may, by regulation or order, prescribe additional 
                restrictions and requirements limiting the disclosure 
                of nonpublic customer information, including 
                information to be used in an evaluation of the credit 
                worthiness of an issuer or other customer of that 
                insured depository institution and such additional 
                restrictions as may be necessary or appropriate to 
                avoid any significant risk to insured depository 
                institutions, protect customers, and avoid conflicts of 
                interest or other abuses.
            ``(11) Scope of application.--
                    ``(A) Application limited to retail activities.--
                The Federal banking agencies, after consultation with 
                the Securities and Exchange Commission, may waive the 
                requirements of any provision of this subsection, other 
                than paragraph (10), with respect to any transaction 
                otherwise subject to such provision between--
                            ``(i) any insured depository institution or 
                        any other person who is subject, directly or 
                        indirectly, to the requirements of this 
                        section; and
                            ``(ii) any other insured depository 
                        institution, any registered broker or dealer, 
                        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 
                        Federal banking agencies, after consultation 
                        with the Securities and Exchange Commission, 
                        jointly determine, on the basis of the 
                        financial sophistication of the customer, does 
                        not need the protection afforded by the 
                        requirements to be waived.
                    ``(B) No effect on other authority.--No provision 
                of this subsection 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;
                            ``(ii) any authority of any State 
                        securities regulatory agency; or
                            ``(iii) 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.
            ``(12) Enforcement.--The provisions of this subsection 
        shall be enforced in accordance with section 8.''.
    (b) Regulations.--Not later than 1 year after the date of enactment 
of this Act, after consultation with the Securities and Exchange 
Commission, the appropriate Federal banking agencies (as defined in 
section 3 of the Federal Deposit Insurance Act) shall jointly 
promulgate appropriate regulations to implement section 18(q) of the 
Federal Deposit Insurance Act, as added by subsection (a) of this 
section.

SEC. 3. REGULATION BY THE SECURITIES AND EXCHANGE COMMISSION.

    (a) SEC Rulemaking.--Not later than 1 year after the date of 
enactment of this Act, the Securities and Exchange Commission shall, 
after consultation with the Federal banking agencies (as defined in 
section 3 of the Federal Deposit Insurance Act), promulgate regulations 
that--
            (1) would afford customers of brokers and dealers that 
        affect transactions on behalf of insured depository 
        institutions and customers of affiliates of insured depository 
        institutions protections that are substantially similar to 
        section 18(q) of the Federal Deposit Insurance Act (as added by 
        section 2 of this Act) and the regulations promulgated 
        thereunder; and
            (2) are consistent with the purposes of that section 18(q) 
        and the protection of investors.
    (b) Enforcement.--The Commission shall have the same authority to 
enforce rules or regulations promulgated under subsection (a) as it has 
to enforce the provisions of the Securities Exchange Act of 1934.

SEC. 4. ENFORCEMENT COORDINATION.

    The Federal banking agencies and the Securities and Exchange 
Commission shall work together to develop comparable methods of 
securities enforcement and a process for the interagency exchange of 
enforcement-related information.
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