[Congressional Record Volume 141, Number 62 (Tuesday, April 4, 1995)]
[Senate]
[Pages S5123-S5125]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           ORDER OF PROCEDURE

  Mr. DOLE. Mr. President, the Senator from Ohio wants to make what 
looks like an address to me. Will the Senator from Ohio have any 
objection if we reach an agreement we can interrupt to get the 
agreement?
  Mr. GLENN. I just want to submit a bill and give a speech. I can stop 
in the middle.
  Mr. DOLE. Why do you not go ahead.
  The PRESIDING OFFICER. The Senator from Ohio.
  Mr. GLENN. Mr. President, I ask unanimous consent to proceed as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GLENN. I thank the Chair.
  (The remarks of Mr. Glenn pertaining to the introduction of S. 669 
and S. 670 are located in today's Record under ``Statements on 
Introduced Bills and Joint Resolutions.'')
  Mr. PRYOR. Mr. President, speaking of protections that should be 
given to people--in fact, last Tuesday, 1 week ago, I introduced the 
Bank Customer Confidentiality and Protection Act of 1995, which became 
S. 663.
  This legislation was crafted to address problems in the area of bank 
sales of uninsured products, such as mutual funds identified during an 
investigation conducted by my staff on the U.S. Special Committee on 
Aging.
  After hearing the stories of numerous older Americans specifically, 
who claim they did not know what they were buying when they purchased 
an uninsured product through their bank and then lost much of their 
life savings, I am today convinced that more stringent protections are 
needed to ensure that financially inexperienced bank customers fully 
understand what they are buying when they invest in uninsured accounts.
  Mr. President, I have a series of stories today. I am trying to put 
human faces and human concerns together with statistics. This is a 
letter I received on November 11, 1994. Let us just call our friend who 
wrote me ``Dick.'' This legislation today is intended to help 
financially inexperienced bank customers such as this man, a 64-year-
old retired priest and a Vietnam veteran.
  By last year, Dick had saved $3,000 for a cruise that he wanted to 
take 2 years in the future when he retired. In fact, I believe in his 
letter he states that he wants to take this cruise sometime in late 
1995. He had always put his money in savings accounts and in CD's at 
this particular bank. He had never invested before in a mutual fund or 
in any other uninsured product. After all, he is a former priest and he 
never had a lot of money laying around.
  When he went into his bank he told the worker there that he wanted to 
put his money in a safe account. They did the opposite. They put this 
man's money in an uninsured bond fund that lost hundreds of dollars by 
the end of the year. Dick told our staff that had he known this was an 
uninsured product, he would never have given the bank this money. Now 
he may not ever be able to go on that cruise that he had dreamed of.
  Now I want to tell you, Mr. President, how this man and other 
inexperienced older customers ended up buying uninsured products. We 
say, How could that happen? How could any individual be led to buy a 
product that was uninsured?
  The truth is that some banks have elaborate sales systems set up to 
sell securities such as mutual funds to any customer who will buy them. 
They have other types of funds.
  Let me show you how these particular uninsured products, and the 
sales systems, work at some of our banks. Perhaps it is the bank that 
the Presiding Officer banks with. Perhaps it is the bank that I bank 
with.
  Our customer case is Mrs. Jones. This is a true case of a 77-year-old 
widow who never put her money in anything but insured products like 
CD's. Our other cast members include Sally, who is Mrs. Jones' teller 
of many years in the bank where she banked. The cast of characters also 
includes David, a broker who was with the bank's brokerage subsidiary.
  Teller No. 12 is Sally. She has identified a customer, Mrs. Jones, 
with a high amount of CD's coming due who, ``came in today and wasn't 
sure what she would do with her money.'' She tells the broker about 
Mrs. Jones having these CD's coming due. Sally, the teller, is so 
excited because she gets a commission on referrals to the bank's 
brokerage arm. So Sally prints out a copy of Mrs. Jones' account 
history.
  There is Mrs. Jones' account history. She sends it over to David 
across the hall, one of the brokers working at her branch. If Sally 
makes more referrals than her coworkers, she could win a prize, even a 
trip to Las Vegas.
  Mrs. Jones is not the only bank customer whose records are shared 
with brokers without the customer's explicit knowledge and consent. In 
fact, my staff has seen proof that this practice is very widespread. 
For example, our staff has seen evidence that brokers have access to 
the banking records of a very, very high ranking U.S. Government 
official and those of a famous actor, which have been shared with many 
other people.
  Until we started this investigation I had never heard of blitz night.
  Some banks hold contests to see which of their tellers and customer 
service representatives can get the most bank customers into the bank 
to talk to a securities salesperson. Depository institution employees, 
who are winners of the blitz telephone calling contest, can now win 
unimaginable wealth.
  Sally the teller, for example, participates in blitz night. Mrs. 
Jones, the 77-year-old bank customer, is contacted during one of these 
contests.
   [[Page S5124]] This basically spells it out for the bank employees, 
advertising: Blitz night, unimaginable wealth, fabulous prizes--for 
what? For making referrals to the bank's own broker who would then try 
to lure from CD accounts, Mrs. Jones and her type, to put their funds 
in uninsured funding properties.
  When Sally the teller calls Mrs. Jones, Sally tells Mrs. Jones that 
she is calling from her branch bank, from Mrs. Jones' bank for many 
years. They know each other. So, from the start, Mrs. Jones associates 
the uninsured products that she will hear about later with what she 
knows about her depository institution. Such is the fact that she feels 
secure taking the advice from the people who work there, and the fact 
that she never has lost any money there in this bank in the past. Since 
it is somebody at her depository institution or her bank calling, Mrs. 
Jones figured that she would make an appointment as Sally suggests.
  Now we are going to demonstrate how some of the brokers who are 
associated with the banks are trained to operate. In a moment I will 
show a document related to one bank's training program for brokers. 
First let me make a few important points about the documents. The 
following bank uninsured product sales system charts are an enlargement 
of selected pages from one large bank's training manual, used to train 
bank-based brokers as recently as last year. This is not something that 
was going on 10 or 20 or 30 years ago. It went on as recently as last 
year. And, Mr. President, it is going on this year.
  Not all banks that sell securities did or do use this sort of 
training manual. However, our investigations suggest that more than a 
few banks use similar sales techniques. These charts that we will see 
represent just one example of how some banks have sales systems that, 
while not illegal necessarily, do tend to contribute to customer 
confusion. These training manuals are for the bank's internal purposes 
only and they are not ever seen by the public. They are not ever seen 
by Mrs. Jones, the potential customer. Thus, what the broker actually 
tells each customer varies from customer to customer.
  Some representatives of the banking community have pointed out to me 
that, despite what a customer is told by a broker, all customers are 
required to sign a written disclosure form when they purchase an 
uninsured product. However as I explained in the statement I made on 
the floor last Tuesday, these written disclosure forms commonly do not 
help financially inexperienced customers fully understand what they are 
purchasing.
  When Mrs. Jones comes into the bank in a few days and talks to 
somebody about getting higher rates on her money, there are things that 
cause Mrs. Jones to not totally understand the distinction between the 
depository institution and the brokerage business which might be just a 
few steps away.
  These things which confuse Mrs. Jones include:
  The bank has an FDIC emblem on the bank's doors.
  The location of the broker's desk was near where Mrs. Jones had 
opened her CD account just last year.
  The use of the bank's name and the bank's logo on the uninsured 
product's marketing material.
  And, perhaps most importantly, Mr. President, what the broker tells 
Mrs. Jones about her investment.
  This is a ``person commercial'' we see here, presented by Mrs. Jones' 
new broker named David. It makes it sound as if the only difference 
between the bank's brokerage business and the bank's depository 
business is some separation on paper for ``tax reasons.''
  Another thing I would like to point out is that the broker tells Mrs. 
Jones that his ``recommendations are on the best approaches available 
to investors today.'' However, in this particular case, David, the 
broker, receives a higher commission--this is very important--if he 
recommends one of the bank's inhouse mutual funds that are not insured 
by the Federal Government. This means that David has the incentive to 
push the bank's product regardless of its suitability for Mrs. Jones.
  Let us talk about how the broker and the bank sometimes downplay the 
fact that the broker's products are not backed by the FDIC. Let us take 
Mrs. Jones once again. She is in ill health. She is 77. She is a widow. 
She knows that she is going to need that money eventually. So she asks 
the securities salesperson whether the investment he is offering--
mutual funds, in this case --is insured by the FDIC. To Mrs. Jones, the 
FDIC seal that she saw in the bank is analogous to a ``Good 
Housekeeping Seal of Approval.''
  This particular chart shows us what the broker, David, was trained to 
tell her. David does not tell her that the investment product is not 
insured by the FDIC, it is not insured by anything else, or that she 
could lose all of her money.
  These are his talking points about which he is talking on the phone 
or in person with a potential customer like Mrs. Jones.
  For example, he says, ``With this investment, you can earn $10,000 
more in income over the next 5 years. This will go a long way toward 
providing you with a more comfortable retirement. Don't you agree?''
  Then the next thing that he is instructed to ask, from instructions 
in his private book from the bank: ``Ask for the order!'' Once the 
order is given, and it is not FDIC insured, then a commission--a 
handsome commission, I might say--is paid to the broker and to the 
teller who made the reference of Mrs. Jones' case or her interest to 
buy some additional securities to the broker.
  How do you change the mind, or how are these brokers and personnel 
taught to change the mind of a customer who only wants to purchase a 
CD? Even though she may now think that the uninsured mutual fund is 
backed by the FDIC, Mrs. Jones becomes wary and she tells the broker, 
David, ``I am not interested in anything but CD's.''
  Then the broker might say--once again, this is the sales system 
supplied by the bank and used by the broker to get money from CD's 
through the bank's own financial product, in this case, uninsured 
mutual funds--``If we could show you the way to cut your taxes hundreds 
or thousands of dollars a year, would you have some interest in 
learning more?'' These are the ``three dynamite questions'' right here 
below that the broker is instructed to utilize in luring this poor 
widow woman's funds from CD's into uninsured funds. We see that it 
sounds pretty good to someone who might be on a fixed income with no 
other person to advise her.
  Now, it is not over. David keeps plugging away. The broker keeps 
plugging away. What he recommends that this lady buy is not some fund 
that is insured by the U.S. Government. But now the bank has contrived 
a new name for a new fund for people just like this. Guess what the 
name of that fund is, Mr. President? It is called ``U.S. Government 
Fund.'' And it says, ``This is a mutual fund portfolio of securities 
issued by the United States Government and its agencies. The U.S. 
Government Fund currently pays a dividend of [blank] percent,'' and it 
goes on explaining the U.S. Government Fund, which in no way is tied 
to, in no way is an entity of, or in no way is insured by the 
Government of the United States.
  Mr. President, it is a fraud, and it is wrong, and we must now do 
something about it.
  Look at the number of times that the ``United States'' and ``U.S.'' 
is mentioned on this particular chart. While the customer might not 
ever see this document, it is clear that the brokers are encouraged 
with their instruction sheets to frequently mention the ``United 
States'' and the ``United States Fund.''
  Now, Mr. President, we come to the point where the broker has to make 
his sale. The pressure is mounting. The customer is confused. And this 
chart shows that Mrs. Jones agrees to buy into the bank's proprietary 
``U.S. Government Bond Fund.'' Once again, it is not insured, not a 
Government fund, but only named the ``U.S. Government Bond Fund.''
  Mrs. Jones may have been convinced that the product was right for 
her, or she may be just deferring to David, who is part of the 
institution that she trusts so much, her bank, with the FDIC seal in 
the window. While Mrs. Jones is going to be asked to sign a disclosure 
form, this may not and probably will not help her realize that this 
product is probably not the right product for her.
   [[Page S5125]] More than a few financially inexperienced bank 
customers have told our committee staff that when they looked over the 
disclosure forms, they did not understand what they read. These 
customers typically would then ask the investment sales people to 
interpret the forms for them. In these cases, the sales people told 
their customers that the documents were just a ``formality'' to open 
the account, or that the form simply was stating what the sales people 
had told the customers.
  It is not hard to identify the problem because the problem is, in 
some cases, the brokers have made misleading, false statements about 
the nature of the uninsured products when they describe them, such as, 
``This is as safe as the money in your pocket, and you will only lose 
money if the Federal Government goes bankrupt,'' or, ``It is backed by 
something better than the FDIC.''
  Finally, the legislation that I introduced last Tuesday, which was 
crafted after numerous meetings with industry and consumer groups, 
would provide needed consumer protections for financially inexperienced 
customers. This legislation would provide protections to financially 
inexperienced bank customers by, one, full and clear disclosure about 
the risks associated with uninsured products; by establishing limits to 
compensation that institution employees receive for making referrals to 
securities sales people. Remember the case of Sally, Mr. President, our 
bank teller who got a nice commission by referring Mrs. Jones' private 
banking records and situation to a broker across the aisle from her; 
and to establish guidelines for uninsured products and promotional 
materials; common sense physical separation of deposit and nondeposit 
sales products would be another area of this legislation; and fifth, 
Mr. President, we would end in my legislation the practice of sharing 
bank customers' personal financial information without the customer's 
explicit consent; and finally, Mr. President, we would increase the 
coordination of securities enforcement activities between the Federal 
banking agencies and the Securities and Exchange Commission.
  I am very hopeful that this will begin a dialog in which we will find 
as an end result a cure for this particular problem that we are 
addressing today in the Senate. It is a problem, we think, of severe 
magnitude. It is a problem which has not risen to the height of many of 
the concerns we have expressed here in recent months, but we do think 
this is a concern which should be addressed and should be one of 
protections that we should ensure for those potential customers of 
uninsured bank products such as mutual funds and certain bond funds 
that are uninsured.
  Finally, Mr. President, if we do it for no other category of our 
population, let us do it for those individuals like Mrs. Jones, that 
77-year-old widow who has no one to lean on, no advice, no adviser, and 
truly finds herself in the grips of, in my opinion, unethical 
salespersons, unethical brokers, and people who are interested only in 
making certain that they receive a nice fat commission in selling Mrs. 
Jones uninsured bank products which truly may wipe out all of her 
assets.
  Mr. President, I see no other speakers or Senators seeking the floor. 
I wish to thank the Chair, and at this time I yield the floor and 
suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Ms. MOSELEY-BRAUN. Mr. President, I ask unanimous consent that the 
order for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  

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