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1996 Annual Report


Consumer Protection Activities

Along with promoting the safety and soundness of FDIC-insured institutions, the FDIC has a strong consumer protection role. The agency protects depositors of failed institutions, as described in the previous chapter. Also, primarily through its Division of Compliance and Consumer Affairs (DCA), the FDIC enforces regulations implementing consumer protection and civil rights laws, such as:
  • The Community Reinvestment Act (CRA), which encourages federally insured lenders to help meet the credit needs of their communities;
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  • The Truth in Lending Act, which requires accurate disclosures of interest rates and finance charges so that loan applicants can comparison-shop for a mortgage or other consumer loan;
Cheyenne River Sioux Tribe photo

Bankers and representatives of the Cheyenne River Sioux Tribe discussed new lending opportunities at a meeting co-sponsored by the FDIC's Kansas City regional office.

  • The Equal Credit Opportunity Act, which promotes the equal availability of credit to all credit-worthy applicants, regardless of such factors as race, color or religion;

  • The Home Mortgage Disclosure Act, which requires that regulated lenders report annually on their mortgage-related activity as a way to detect possible lending discrimination;

  • The Truth in Savings Act, which requires institutions to disclose fees, interest rates and other account terms so that consumers can compare deposit accounts offered by different institutions; and

  • The Fair Credit Reporting Act, which establishes procedures for correcting mistakes on a consumer’s credit file and requires that a credit file only be provided for legitimate business purposes.

The FDIC also helps educate bankers and consumers in areas that include fair lending, community reinvestment and deposit insurance.

Community Reinvestment Act Reform

The FDIC continued working with the other federal bank and thrift regulatory agencies to implement an April 1995 final rule amending a regulation relating to the Community Reinvestment Act.

The revised CRA regulation emphasizes evaluations of an institution based on actual lending, investment, and service. In general, the regulation establishes different performance tests for different types of institutions—large institutions, small institutions, and wholesale and limited-purpose institutions. Small institutions began to be evaluated under the new streamlined standards on January 1, 1996. Large institutions began gathering data for the new performance tests on January 1, 1996, but their first reports of the data were not due until March 1, 1997. The new performance evaluations for large institutions will begin in July 1997. Institutions received free computer software from the FDIC to assist them in collecting the CRA loan data.

To educate bankers about the new rule, DCA staff in 1996 conducted 24 training sessions, attended by more than 1,500 bankers. Staff reached another 2,000 bankers through 35 speaking engagements.

In October, the FDIC distributed to FDIC-supervised institutions an interagency guide on the revised CRA regulations. The publication, Interagency Questions and Answers Regarding Community Reinvestment, answers questions on CRA implementation that regulators have been asked most frequently by bankers, and consolidates other related information available to the public.

Compliance Examinations

DCA’s role includes examining FDIC-supervised banks for compliance with consumer protection laws. DCA conducted 2,033 such examinations in 1996. As a result of these or previous examinations, 162 banks reimbursed nearly $1.6 million to 6,387 consumers during 1996 for violations of the Truth in Lending Act regarding incorrect disclosures.

DCA began new examination procedures designed to streamline the examination process. For example, the division developed an off-site “pre-examination planning” program to reduce the amount of time examiners spend on-site at an institution. This effort involves examiners gathering material, analyzing the information, and developing the scope of the exam before beginning the on-site examination. Since the pre-examination planning program was put in place, about 25 percent of the examination hours have been spent outside of the financial institutions.

To monitor the new examination procedures’ effectiveness, a follow-up examination questionnaire was developed for banks examined under the new guidelines. The banks’ comments are reviewed quarterly to highlight areas where DCA can reinforce or redirect its examination or training efforts. Many banker responses have noted improvement in DCA’s examinations, including better communication and more notice of upcoming examinations (up to two months before the start of the examination).

DCA issued in August the revised FDIC Compliance Examination Manual, which includes descriptions of the many modifications in examination procedures and regulatory changes such as CRA. The manual also is available through the Internet on the FDIC home page (www.fdic.gov).

DCA in 1996 also implemented new “mapping” software to help examiners review banks’ fair lending and CRA lending performances. This software gives examiners easy access to current census, Home Mortgage Disclosure Act and other demographic data.

Community Outreach

The FDIC frequently meets with community and consumer groups, bankers, citizens and government officials to exchange information about CRA and fair lending issues. FDIC community outreach activities in 1996 included a forum held in California to identify roadblocks to community development lending, and a focus group in Georgia to promote communication between community representatives and bankers following claims of lending discrimination.

Other outreach efforts encouraged community development in low- and moderate-income areas and lending for minority-owned small businesses. One example was a series of meetings between bankers and representatives of the Cheyenne River Sioux tribe that was co-sponsored by the FDIC and the South Dakota Bankers Association.

Deposit Insurance Training

The staff of an insured institution generally is a customer’s first source of information about FDIC deposit insurance. In 1996, DCA and the FDIC’s Legal Division hosted a number of seminars aimed at teaching bank employees about what deposit insurance does and does not cover, and how to explain coverage to consumers accurately and clearly. The seminar “textbook,” The Financial Institution Employee’s Guide to Deposit Insurance, was revised in late 1996 in response to feedback from seminar participants and other users. The guide contains material for institution staff to conduct their own deposit insurance training, including a draft script and sample tests on both deposit insurance and nondeposit investment products, which are not covered by FDIC deposit insurance. The guide, which is available on the Internet, was distributed to all FDIC-insured financial institutions in November 1996.

Many financial institutions recently began offering their customers a range of nondeposit investment products such as mutual funds, annuities and securities. Sales activities for nondeposit investment products should ensure that customers are clearly and fully informed of the nature and risks of the products. In May 1996, the FDIC released the results of a year-long study on the marketing and sales practices used by insured institutions to sell nondepsoit investment products. The study examined whether the disclosure requirements for these products were being followed as outlined in the Interagency Statement on Retail Sales of Nondeposit Investment Products, issued in 1994 by the four federal bank and thrift regulatory agencies. The study found that, for a number of banks, a gap exists between regulatory guidelines and actual employee performance. More than one-fourth of the 1,194 FDIC-insured banks surveyed failed to make basic disclosures as required under the Interagency Statement.

Largely as a result of the survey findings, the FDIC has undertaken a series of projects concerning the sale of nondeposit investment products by FDIC-insured financial institutions, including:

  • Establishing regulatory standards for bank securities representatives that are consistent with the professional qualification requirements for broker/dealers and registered representatives,

  • Designing training packages for bank employees involved in the sale of nondeposit investment products,

  • Improving the process for handling consumer complaints about non-deposit investment products,

  • Expanding examination guidance to better assess bank compliance with regulations and guidelines concerning these products, and

  • Creating a training program for bank examiners to prepare them to implement the new examination procedures.

While many related projects are in their formative stages, the FDIC completed several important objectives in 1996. For example, DCA employees who respond to inquiries from the public through the FDIC’s Consumer Call Center were trained to handle consumer complaints about nondeposit investment products. DCA also drafted and field-tested examination guidance. In addition, the FDIC drafted two proposed rules—one on recordkeeping and confirmation requirements for certain securities transactions (click here) and the other on testing and licensing requirements for bank employees involved in the retail sales of nondeposit investment products (click here). Finally, DCA prepared a pamphlet informing consumers about the information they should receive before purchasing a nondeposit investment product from a financial institution. The pamphlet, which is expected to be published in 1997, elaborates on guidance about nondeposit investment products published in the 1994 FDIC brochure Insured or Not Insured.

Responses to Complaints and Inquiries

DCA maintains a toll-free telephone number for its Consumer Call Center (800-934-3342 or 202-942-3100), which handles inquiries from consumers and bankers about deposit insurance and consumer protection laws. The Call Center also accommodates TTY systems for the deaf (800-925-4618 or 202-942-3147). Nearly 80,000 calls were handled by the Call Center in 1996 consisting of over 40,200 calls to the automated recording of information, and another 39,100 calls answered directly by staff in DCA’s Washington and eight regional offices. While most of the calls were inquiries on deposit insurance coverage, a large number concerned bank compliance with consumer protection laws. If consumers believed their banks had violated a consumer protection law, DCA instructed them on how and where to file a formal complaint.

DCA also answered 6,381 written complaints and inquiries from consumers and bank personnel. Most written inquiries from consumers and bankers dealt with deposit insurance coverage. Of the consumer inquiries that related to consumer protection laws, most concerned the Fair Credit Reporting Act. As for written complaints, nearly half from consumers involved credit cards, with the most common involving the bank’s reason for denial, billing disputes and customer service problems. A significant number of complaints for deposit account-related issues and compliance with the Equal Credit Opportunity Act also were received from consumers.

[Photo] Stan Jackson

Stan Jackson of the Washington office is among the front-line employees of the Ombudsman's office helping to answer questions and address concerns about the FDIC.

While DCA assists consumers with specific questions about deposit insurance and consumer protection laws and complaints against FDIC-insured institutions, the Office of the Ombudsman provides guidance to consumers on where to get information throughout the agency, and acts as an impartial third party to assist consumers and bankers who have had problems working with the agency. The year-old Ombudsman’s office is independent of other FDIC program areas and is a neutral and confidential source of assistance for consumers, bankers and FDIC employees with questions or concerns about the Corporation.

The Ombudsman office’s marketing and outreach efforts in 1996 emphasized its accessibility and advocacy for a fair process. Banker outreach was conducted through mailings, brochures, conferences and articles explaining the office’s role. Ombudsman staff attended about 110 events, including state and national banking conferences and FDIC-sponsored meetings. The office also participated in more than 15 annual conferences, such as the National Consumers’ Week event, sponsored by the U.S. Office of Consumer Affairs, and consumer-related groups and associations.

The FDIC Office of Legislative Affairs also coordinated with other divisions and offices in responding to 1,663 written inquiries from members of Congress in 1996. Many of these inquiries dealt with constituent problems in areas such as truth in lending, fair credit, and bank compliance with consumer protection laws.

On-Line Consumer Information

The FDIC continued its outreach efforts through its Internet home page, providing the public with ready access to FDIC consumer information, press releases, statistics on banking and other public material. New information is continually added to the home page as it becomes available. Links to other federal agencies and other sources of information have been included on the home page to enhance its usefulness. Listings of banks examined by the FDIC for CRA compliance and schedules of future CRA examinations are also now available. Frequently requested brochures on topics such as equal credit opportunity and fair credit reporting are scheduled to be added in 1997.

Separately or through the FDIC home page, the public can also send messages to DCA requesting answers to specific questions about deposit insurance, fair lending rules and other consumer protections. The consumer mailbox address is consumer@fdic.gov.

Electronic Banking

Financial institutions are increasingly expanding into electronic banking activities. Examples include stored-value cards, Internet banking, and electronic cash systems. The FDIC is working to stay abreast of these emerging technologies, as well as their implications for the industry and consumers.

In 1996, the FDIC received both formal and informal requests for guidance on whether funds represented by stored-value cards constituted “deposits” within the meaning of the Federal Deposit Insurance Act. A stored-value card contains financial information electronically stored on a magnetic strip or computer chip and can be used to buy goods and services. In response to those requests, the FDIC Board of Directors on July 16 approved General Counsel Opinion No. 8. The General Counsel concluded that in most cases stored-value cards are not protected by deposit insurance because the issuing institution would typically maintain a single pooled account to hold the funds represented by all their customers’ stored-value cards. However, a banking institution could design a stored-value card in such a way that the underlying funds would be insured if the program met certain statutory requirements. For example, systems in which the funds underlying the stored value remain credited to a customer’s account until the payee makes a claim on the funds would appear to be deposits under the law.

The FDIC Board also decided to seek public comment on stored-value cards and a variety of electronic payment issues, including concerns raised by Internet banking and the use of electronic cash. The agency held a day-long public hearing on September 12 that drew a wide spectrum of participants, including representatives from the banking and technology industries, community groups, and other regulatory agencies. Topics discussed ranged from expanding technologies being tested or in use in other countries, to concerns on security and privacy issues. Separately, the Board received written comments on whether the agency should, by future regulation, determine that stored-value cards are entitled to deposit insurance. Emoney council meeting photo

Bankers, civic leaders, consumers and other witnesses gave FDIC officials their views on electronic money and banking at a September 12 hearing.


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Last Updated 07/09/99 communications@fdic.gov