I
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 in-
sured depository institutions to prevent customer confu-
sion about the uninsured nature of the products, and
for other purposes.
Be it enacted by the Senate and House of Representa-
tives 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 IN-
VESTMENT PRODUCTS BY INSURED DEPOSI-
TORY 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 DEPOS-
ITORY INSTITUTIONS.
‘‘(a) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
‘‘(1) BANKING OFFICE.—The term ‘banking of-
fice’ 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 invest-
ment 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 ACTIVI-
TIES.—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 institu-
tion, 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 appro-
priate 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 other-
wise affecting—
‘‘(i) any authority of the Securities
and Exchange Commission, any self-regu-
latory organization, the Municipal Securi-
ties 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 Se-
curities Rulemaking Board, or the Sec-
retary 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 mean-
ing given to the term ‘securities laws’ in
section 3(a)(47) of the Securities Ex-
change Act of 1934.
‘‘(ii) SELF-REGULATORY
ORGANIZA-
TION.—The term ‘self-regulatory organiza-
tion’ has the meaning given to such term
in section 3(a)(26) of the Securities Ex-
change Act of 1934.
‘‘(c) PROHIBITION ON MISLEADING AND DECEPTIVE
PRACTICES.—
‘‘(1) IN GENERAL.—An insured depository in-
stitution may not permit any person to engage in
any practice, or employ any advertising, at any of-
fice 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 Fed-
eral banking agencies shall jointly prescribe rules of
fair practice governing retail sales, including phone
sales and direct mail solicitations, of nondeposit in-
vestment products by, on behalf of, or in any office
of, any insured depository institution (in any capac-
ity) 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 Secu-
rity Dealers and any other applicable rules or regu-
lations the agencies determine to be appropriate.
‘‘(d) DISCLOSURE REQUIREMENTS.—
‘‘(1) WRITTEN DISCLOSURES.—An insured de-
pository institution shall require any person who
sells or offers for sale any nondeposit investment
product in any office of, or on behalf of, the institu-
tion to disclose, in writing, to any person who seeks
to purchase, or seeks an opinion or investment ad-
vice about, any such product the following informa-
tion:
‘‘(A) The nondeposit investment product is
not insured by the Federal Deposit Insurance
time of the initial purchase by any person of
such product, a separate statement, signed and
dated by such person, which contains the dec-
laration 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 loca-
tion 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 ob-
tained 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
SUBSE-
QUENT
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 con-
junction with, an electronic funds transfer (as de-
fined in section 903(6) of the Electronic Fund
Transfer Act), a visual or oral notice may be pro-
vided (through the device used by the purchaser to
carry out such transfer), in lieu of the written disclo-
sure required under paragraph (1), reminding the
purchaser that the nondeposit investment product is
not a deposit which is insured by the Federal De-
posit Insurance Corporation, the United States Gov-
ernment, or the institution and poses some invest-
ment risk.
‘‘(4) MODEL
FORMS.—The Federal banking
agencies shall jointly prescribe regulations establish-
ing model forms which meet or exceed the minimum
requirements of this subsection.
‘‘(5) ADVERTISING AND PROMOTIONAL MATE-
RIAL.—Any advertisement, solicitation, or pro-
motional or sales material which relates to any
nondeposit investment product which is sold, or of-
fered for sale, at any office of, or on behalf of, an
insured depository institution (including any solicita-
tion 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 opin-
ion 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 institu-
tion if such area is physically segregated from
the part of the office where deposits are accept-
ed 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 prod-
uct 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 Gov-
ernment, or the institution; and
‘‘(B) deposits are not accepted at that lo-
cation.
‘‘(f) EMPLOYEE SALES, TRAINING, AND COMPENSA-
TION.—
‘‘(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 insti-
tution 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 deposi-
tory 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 pro-
vides 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 institu-
tion, the Federal Deposit Insurance Cor-
poration, or the United States Govern-
ment, or the institution; and
‘‘(iii) does not receive any compensa-
tion 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 invest-
ment advice about, any nondeposit investment
product in any part of any office of the institu-
tion, 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 Fed-
eral banking agencies shall prescribe regulations es-
tablishing minimum requirements for insured deposi-
tory institution compensation programs that are de-
signed to ensure that the programs do not operate
as, and do not have the effect of providing, an incen-
tive for the sale of nondeposit investment products
to any customer in lieu of a more suitable invest-
ment option for such customer.
‘‘(g) USE
OF NAMES
OF DEPOSITORY INSTITU-
TIONS.—
‘‘(1) IN GENERAL.—No insured depository in-
stitution, 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 in-
stitution in connection with—
‘‘(A) the name of any investment company
for which the institution or affiliate acts as in-
vestment adviser; or
‘‘(B) any nondeposit investment product—
‘‘(i) which is offered for sale by the
institution or affiliate or by any other per-
son at any office of, or on behalf of, the in-
stitution; or
‘‘(ii) with respect to which the institu-
tion, 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 deposi-
tory 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.—Not-
withstanding paragraph (1) or (2), if the use of the
name, title, or logo of an insured depository institu-
tion, 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 pro-
hibited by paragraph (1) began before the date of
the enactment of the Depository Institution Retail
Investment Sales and Disclosure Act, the appro-
priate Federal banking agency may permit such use
to continue after the end of the 6-month period re-
ferred 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
CUS-
TOMER 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 institu-
tion, without the prior written consent of the
customer.
‘‘(B) RECORDS OF CUSTOMER CONSENT.—
Whenever any insured depository institution ob-
tains 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 con-
fidential information) may not be required
as a condition for the performance of serv-
ices 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 in-
stitution.
‘‘(ii) TREATMENT OF CERTAIN DEPOS-
ITS.—Any renewal of an account in an in-
sured depository institution and any roll-
over 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 IDEN-
TIFIABLE
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 pur-
suant to the Investment Advisers Act of 1940.
‘‘(2) CONFIDENTIAL CUSTOMER INFORMATION
DEFINED.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘confidential customer in-
formation’ means financial information regard-
ing any specific individual which has been de-
rived from any record of any insured depository
institution and pertains to the individual’s rela-
tionship with the institution.
‘‘(B) CERTAIN
INFORMATION
NOT
IN-
CLUDED IN DEFINITION.—Notwithstanding any
provision of paragraph (1), the term ‘confiden-
tial customer information’ shall not include—
‘‘(i) any information obtainable from
an unaffiliated credit bureau or similar en-
tity or information obtainable in the ordi-
nary course of business from any other un-
affiliated entity;
‘‘(ii) any information provided to any
credit bureau or similar entity in the ordi-
nary 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 institu-
tion, any affiliate of such institution, or
any agent of or contractor with such insti-
tution or affiliate) is limited to the per-
formance of—
‘‘(I) any function which is nec-
essary to maintain a customer’s exist-
ing deposit, trust, or credit account
with the institution, including the col-
lection of any amount due the institu-
tion 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 informa-
tion from any insured depository institution to any
affiliate of such institution, including an evaluation
of the creditworthiness of an issuer or other cus-
tomer of that insured depository institution or any
affiliate of such institution.
‘‘(i) COMPLIANCE REQUIREMENT.—
‘‘(1) IN GENERAL.—In conducting any exam-
ination of an insured depository institution, the ap-
propriate Federal banking agency shall include an
examination of the institution’s record of compliance
with the provisions of this section and the institu-
tion’s procedures for ensuring such compliance.
‘‘(2) PROCEDURES.—An insured depository in-
stitution which permits any person who is not an of-
ficer 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 institu-
tion shall establish procedures to ensure that the re-
quirements 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 prod-
ucts using testers who, without an intent to pur-
chase such products, pose as prospective purchasers
of such products for the purpose of collecting evi-
dence of violations of this section and regulations
prescribed under this section.’’.
Æ
HR 727 IH——2
HR 727 IH——3