Full text of FDIC Consumer News : Winter 1994

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INSIDE
Insured or
Not Insured ..... ....... .4-6
Buyers' Guide to
FDIC Properties ..... ...7-9
How to Get
CRA Evaluations ... 10 -11
If Your
Bank Fails .. .......... 12-14

News and Information On Consumer Issues from the Federal Deposit Insurance Corporation
VOLUME 1, ISSUE 2

WINTER 1994

Protect Your Plastic •••
Con artists are getting smarter,
but you can fight back
If you're

like most people, you

probably think that locks on your doors
and windows will protect your
hard-earned money from thieves. But
nowadays, that's not enough.
Sophisticated con artists are taking,
and making, credit cards to steal
hundreds of millions

of dollars each

year. They are doing this by targeting
areas of homes and offices you might
never suspect. Places like the
telephone, the mail box and even the
garbage leh outside .
In Washington, OC, for example, nine
postal workers were among 40
people arrested in the past year and
charged with intercepting or stealing

and MasterCard credit cards .
According to the U.S. Attorney's
Office in Los Angeles, the
defendants encoded the legitimate
card numbers onto counterfeit
cards, along with a fictitious name.
Next they made fake IDs in the
name of the fictitious card holder,
complete with a photo of one of
the conspirators . That person then
would then be sent to banks around
the country to get cash advances
totaling thousands of dollars, using
the phony card and ID. The real
account holders discovered they'd
been victimized when they found
unauthorized charges on
their monthly statements.

mail that contained credit cards,
applications from banks for
"pre-approved" credit cards, blank
checks and other items. Authorities ~y
that the suspects ran up cash advances
and credit card charges totaling
millions of dollars.
Consider this recent case in California,
where a group was accused of
stealing car rental contracts to get the
account numbers of legitimate Vi~

''Treat your credit cards with
as much care as you
treat your cash,• warns
Eugene Seitz of the
FDIC' s Division of
Supervision in
Washington, who
helps investigate

t
~

.'·,

.

~

~

- ··- · ,,. .

•

more valuable

fraud and other criminal activities

card number can be

involving banks. "In fact, to a thief,

than cash. Your account number and

your credit card and even your credit

a little personal information about you
Illustration by: T. W . Bollard

1

can be enough for the thief to
purchase goods and services by
telephone or produce another card."

There's no need to panic. Credit card
companies, merchants, the U.S. Postal
Service and others handle millions of
transadions and pieces of mail each
day without incident. Card issuers and
law enforcement authorities also are
improving their defenses against scam
artists. And even if a thief does use your
name or cord number to run up
hundreds of dollars of charges, by law
you're only liable for a maximum of
$SO per card. You owe nothing on
charges run up aher you report the
problem to your credit cord company.
But while the law protects you
against major losses, here's the
bad news: Getting replacement
cards and clearing up other
problems, such as any damage to
your credit record, can be
time-consuming and
frustrating. Also, one
reason interest rates on
credit cards are higher
than on other types of
loans is because the

What can you do to prevent being
victimized by credit card fraud? FDIC
Consumer News, based in part on
interviews with officials at the FDIC
and other government agencies, put
together this list of tips:

1• Never give your card
number, confidential "PIN"
(personal identification
number) or similar personal
information over the
telephone unless you
originate the call or you
trust who's on the other
end of the phone.
Many of the worst scams reported
by consumer protection agencies
involve phony "telemarketers." It
doesn't matter how friendly the caller
sounds. If he or she promises prizes,
vacations or low-cost goods or
services that seem too good to be
true, this could very well be a scam
to get your credit card number,
checking account number or check.

financial institutions that
absorb most of the
losses often pass these
costs along to card
holders. Mark Lowery, a
Special Agent in the Financial
Crimes Division of the U.S.
Secret Service in
Washington, offers another
reason to be concerned
about credit card fraud:
"Funds that are stolen are
used to purchase guns and
drugs, which have a
negative effect on our
entire community."

2
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ICK!!

According to Special Agent Lowery:
"If you get a suspicious call, first
check the company out with your
local Better Business Bureau. If you
believe you've been victimized by a
telemarketer, contact the police or
your local office of the Secret
Service, which is listed in your
telephone book."
And if the caller claims to be a
banker, bank regulator or law
enforcement official asking to "verify"
your card number or other personal
information, hang up fast! Legitimate
banks and government agencies
don't make these kinds of calls.

2. Protect your credit cards
and monitor your accounts.
Be sure to notify your credit card issuer if
your card is lost or stolen, or if
suspicious or inaccurate charges
appear on your billing statement.
Toil-free numbers for these companies
appear on your cards and
statements. Remember, you' re not
liable for unauthorized charges made
after you report a problem.
Put your signature on a new credit
card as soon as it arrives in the mail.
That way, if a thief gets hold of your
card, he or she cannot sign your
name and use that writing sample to
fool sales clerks and others into
approving unauthorized purchases
and withdrawals. Likewise, never
write your PIN number on your card.
Memorize it instead! Never lend your
credit card to others. Keep your
cards in a safe place. Take any old
credit cards or cards you no longer
intend to use, cut them in half and get
rid of the pieces separately, so that
the card number cannot be obtained
by a fraud artist.

c"~ Nt-W4-----------

Michael Bianchetta, also with the

number so it can't

FDIC's Division of Supervision in

or duplicated."

Washington, says that when
charging purchases with your credit
card at a store or other retail facility,
"make sure your card is visible to you
at all times. Some sophisticated
fraudsters have the ability to copy
credit card magnetic strips onto blank
cards in a matter of minutes."
Bianchetta and others recommend this
safe approach at the cash register:

be

read

4. If you receive an

unsolicited offer in the mail

for a pre-approved credit
card you don't want, rip up
the application immediately.
Don't just toss a blank application in
the trash or leave it just anywhere. A
thief can pick through your garbage or
search your property for a

new card from the mail and then go
on a shopping spree before you know
anything has happened.

the cash register, don't leave your card
or your wallet on the counter while you

will apply for one of these cards,

away with your card. If necessary, ask
for your card back until it's your turn .

3. After using your credit
card, always take the receipts
and carbons, and destroy
them as soon as you can.
When you use your credit card for a
purchase or for a cash withdrawal
from an automated teller machine,
the pieces of paper you get back
can be extremely valuable to a
swindler. Any item that has your
bank or credit card account number,
Social Security number, address,
phone number or certain other
information could help a thief make a
countefoit card, dupe a bank
employee into sending a new card, or
order merchandise over the phone.

do so
right away or store the application in a
safe place unti I you get around to it.

5. Protect your incoming mail,
which can s;::Ily a crook with
the kel ing ients to pull off
a credit card fraud.
Chances are your mail carrier may
have just delivered to you some credit
card statements, bank statements, new
credit cards or renewals of existing
ones, pre-approved card applications,
blank checks or other items of a
financial or personal nature. To keep
them from getting into the wrong
hands, Postal Inspector Larry Fryer of
the Postal Service in Washington,
recommends the following:
"Empty your mailbox as soon as
possible after mail is delivered," he
says. "If your mailbox is isolated and
unlocked, consider having a neighbor

you no longer need your receipts and
carbons to verify your purchase,
destroy them, and mutilate the account

And if you don't get your mail for a
few days, report this to the Post Office.

cautions the FDIC' s Seitz. "And when

Follow these basic tips and you, too,
can take some of the credit for the
fight against credit card fraud.

•••
FDIC Consumer News
is published quarterly by the
Federal Deposit Insurance Corporation

Andrew C. Hove, Jr., Chairman

If you think there's a good chance you

get your mail for you. Or, place a lock
on the mailbox or rent a P.O. box. If
you're going away for several days,
have the Post Office hold your ma ii.

"Do not leave credit card receipts or
statements on open desks or tables,"

and it doesn't arrive, also report that
to your bank or credit card
company. You'll want to make sure
that someone hasn't submitted a false
change-of-address for you or
otherwise gotten to your ma ii."

pre-approved card application, apply
for the card in your name, intercept the

Keep the card in your hand and out of
the view of others until the clerk is
ready to "swipe" your card through the
machine that electronically authorizes
the purchase. If there's a traffic jam at

wait, and don't let a clerk wander

If you were expecting a bank
statement or credit card in the mail

Alan J. Whitney, Director,
Office of Corporate Communications
Caryl A. Austrian, Deputy Director,
Office of Corporate Communications

Jay Rosenstein,

Senior Writer-Editor

Larry A. Webb, Graph ic Designer

FDIC Consumer News
is produced by the Office of Corporate
Communications, in cooperation w ith
other FDIC Divisions and Offices. It is
intended to present information in a
nontechnical way and is not intended to
be a legal interpretation of FDIC
regulations and policies . This newsletter
may be repr inted in whole or in part.
Please cred it material used to FDIC
Consumer News. Subscriptions are
available free of charge. Requests for
subscriptions, back issues or address
changes should be mailed to:

FDIC
Room 7118
550 17th Street, N. W.
Washington, DC 20429
Dear Subscribers:
The FDIC will fill reasonable requests for
multiple copies of FDIC Consumer News,
but we can send them to only one
address. So, if you wish that more than
one office or person in your organization
receive our newsletter, let us know how
many copies you need but please just
designate one name and address.

------------C"~ N~-----------3

Insured Or Not Insured? -- That Is The Question
Here are the Answers • • • •
A guide to what consumers
most often mistakenly believe
is protected by FDIC insurance
So - you feel your cash is safe and
protected when you walk through the
door of the bank, much safer than
when you kept it under your mattress.
And you should. BUT, are your
funds a// covered by FDIC
insurance just because you
walked into a secure-looking
building with iron bars and
guards? Not necessarily
- it depends on which
of the bank's products
you decide to use.
Most of us are familiar
with traditional types
of bank accounts checking, savings,
trust, retirement, and
certificates of deposit
!CDs). Banks also
may offer what is
called a money market
deposit account, which
earns interest at a market rate set by
the bank and usually limits the
customer to a certain number of
transactions within a stated time
period. Except for certain trust
accounts !where the assets of the
account consist of securities rather
than deposits), all of these types of
accounts generally are insured by
the FDIC up to the legal limit of
$100,000 and sometimes even
more for special kinds of accounts.

holds stock going bankrupt, resulting
in the loss of investors' funds - is
more spread out because you own a
piece of a lot of companies instead
of a portion of a single enterprise. IA
mutual fund manager may invest your
money in either a variety of industries
or several companies in the same
industry; you can - and should obtain definitive information about
the fund before

investing in it by
reading a prospectus,
which is available at the bank
or brokerage firm where you plan
to do business.)

1:ai,.,..........-""'"'

SO WHAT'S NOT INSURED?
Mutual Funds
Let's look first at the most popular
item - and the one that too many
people mistakenly believe IS insured
- mutual funds. Investors favor mutual
funds over many other investments
lately because they usually have a
higher rate of return than, say, CDs.
And with a mutual fund, such as a
stock fund, your risk - the risk of a
particular company in which the fund

The key point
to remember
when you
contemplate
purchasing mutual
funds, stocks, bonds or other
investment products, whether at a
bank or elsewhere, is: Funds so
invested are NOT deposits, and
therefore are NOT insured by the
FDIC - or any other agency of the
federal government.
However, mutual funds are protected
against fraud and theft through
extensive regulations administered by
the United States Securities and
Exchange Commission and state
/1/ustrotion by: T. W. Bo/lord

4
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mutual funds and certain other
produ~ts are not insured prompted
the FDIC and the other financial
institution regulators to issue a joint
statement in February for banks that
sell mutual funds and annuities
!another investment product that is
NOT FDIC-insured). The joint
statement outlines steps banks and
thrifts should take to minimize the

securities regulators. And securities
you own, including mutual funds, that
are held for you by a broker or a
bank's brokerage subsidiary, may be
protected by the Securities Investor
Protection Corporation (SIPC,
pronounced sip-ick), a
non-government entity funded by
assessments paid by members. SIPC
protects customer accounts ago inst
physical loss of their securities up to
$500,000, including up to
$1'00,000 in cash, if a member
brokerage or bank brokerage
subsidiary fails. Securities purchased
by a bank for trust accounts or other
purposes and held by a SIPC
member brokerage or bank
brokerage subsidiary also are
protected by SI PC.
Because both SIPC and the FDIC
provide a seal for members to
display, and both specify cash limits
that appear to be almost the same,
consumers may confuse the two
organizations. Just remember that
only the FDIC protects the money you
have in a deposit account. Neither
the FDIC nor SIPC protects the
money you invest in a nondeposit
product like a mutual fund or other
security. Another very important
distinction between SIPC protection
for investments and FDIC insurance
on deposit accounts is: NO type of
protection insures against loss in the
value of an investment account !the
value of your investments can go up
- or DOWN - depending on the
demand for them in the market),
while federal deposit insurance
protects the entire amount in your
deposit accountls) up to the
$100,000 limit.
Mounting concern over consumers'
not being aware that investments in

possibility of customer confusion,
including 111 obtaining a signed
statement when a customer opens an
investment account acknowledging
that the customer has received and
understands the disclosure, and 121
offering investment products for sale
in a physical location that is separate
from the area where retail deposits
are taken. A copy of the joint
statement is available from the
FDIC' s Office of Corporate
Communications, Washington,
DC 20429.

Treasury Securities
Among other items you might buy
or keep at a bank that are
NOT insured are Treasury securities,
including Treasury bills (T-bills),
notes and bonds. T-bills are more

-.
FDIC-Insured
Checking Accounts maintained at a bank
or savings association, including money
market deposit accounts
-

Savings Accounts
(including passbook accounts)
Certificates of Deposit
Retirement accounts {consisting of cash
on deposit at a bank or thrift}

commonly purchased through a
financial institution. Here's how T-bills
work: When you buy them through
your bank, you receive a receipt,
which you should keep in a safe
place along with your other valuable
documents. The bank maintains a list
of who has purchased T-bills. When
the security matures, the bank will
either deposit the proceeds to an
account you have designated, send
you a check or purchase new T-bills,
according to your instructions.
Questions about T-bills often arise
when a bank fails. Customers who
purchase T-bills at banks that later
fail become concerned because they
think their actual Treasury securities
were kept at the failed bank. In fact,
in most cases banks purchase T-bills
via book entry, meaning that there is
an accounting entry maintained
electronically on the records of the
financial institution; no engraved
certificates are issued. Treasury
securities belong to the customer;
the bank is merely acting
as custodian.
Customers who hold Treasury
securities purchased through a bank

.NOT FDIC-Insured
Investments in mutual funds (stoclc, bond
or money market mutual funds}, whether
purchased from a bank, brokerage
or dealer
Annuities (available at some banks;
often purchased from on
insurance company}
Stocks, bonds, Treasury securities or other
investment products, whether purchased
throc.,gh a bank or a brokerIdealer

'--Ci~:::.·___.__,_llooiiiill.__..s:r,.....,..,.l~~,~•s-•I"""'-----~....._-""""'""".-~~

------------c~~ N4'ti-----------5

that later fails can request a
document from the acquiring bank
(or from the FDIC if there is no
acquirer) showing proof of
ownership and redeem the security
at the nearest Federal Reserve Bank,
or wait for the security to reach its
maturity date and receive a check
from the acquiring institution, which
may automatically become the new
custodian of the failed bank's T-bill
customer list (or from the FDIC acting
as receiver for the failed bank when
there is no acquirer).
As noted, Treasury securities are not
covered by federal deposit
insurance. However, payments of
interest and principal (including
redemption proceeds) on Treasury
securities that are deposited to an
investor's deposit account at an
insured depository institution ARE
covered by FDIC insurance up to the
$100,000 limit. And even though
there is no federal insurance on
Treasury securities, they are backed
by the full faith and credit of the
United States Government - the
strongest guarantee you can get.

Safe Deposit Boxes
Another bank service that many
customers are confused about with
regard to insurance is safe deposit
boxes. The contents of a safe
deposit box are NOT insured by the
FDIC, or by the bank where the box
is located. (Make sure you read the
contract you signed with the bank
when you rented the safe deposit
box in the event that some type of
insurance is provided; some banks
may make a very limited payment if
the box or contents are damaged or
destroyed, depending on the
circumstances.) If you are concerned

6
-

about the safety, or replacement, of
items you have put in a safe deposit
box you may wish to consider
purchasing fire and theft insurance.
Usually such insurance is part of a
homeowner' s or tenant's insurance
policy for a residence and its
contents. Consult your insurance
agent for more information. If floods
and earthquakes have been known
to occur in your location, you may
want to look into insurance against
these natural disasters . Separate
insurance for these perils may be
available; again, consult your
insurance agent.
Banks don't take chances, especially
with the vault that contains their cash
and securities or the safe deposit
box area. Keep in mind that safe
deposit boxes are usually a
self-contained unit encased in a steel
box that is virtually unbreachable. In
at least one instance when a bank
changed its location, the entire unit
was lifted by a crane onto a flat-bed
truck, and guards armed with
shotguns accompanied the unit to its
new location, remaining at the ready
until the whole works were
safely installed.

Of course,

on the off chance that the
building burns to the ground, or
someone blows up the building, and
your safe deposit box doesn't
survive, you'll be pleased that you
purchased insurance on the contents.
In the event of a bank failure, in most
cases an acquiring institution would
take over the failed bank's offices,
including locations with safe deposit
boxes. If the FDIC conducts a payoff
because no acquirer can be found,
boxholders would be sent instructions
about removing the contents of their

boxes. (See Page 14 for more
information about safe deposit boxes
at a bank that fails.)

WHAT ABOUT ROBBERIES
AND OTHER THEFTS OF
FUNDS FROM THE BANK?
Back in the nineteenth century, when
Jesse James and other notorious
miscreants were robbing banks,
owners of the stolen funds were
probably out of luck (insurance was
not likely to be available). But today
those funds may be covered by
what's called a banker's blanket
bond, which is a multi-purpose
insurance policy a bank purchases to
protect itself from fire, flood,
earthquake, robbery, defalcation,
embezzlement and other causes of
disappearing funds. The banker's
blanket bond ensures that customers'
funds are protected under
those circumstances.
In those rare instances where a bank
employee may tamper with a
customer's account, the bank's
blanket bond insurance may cover
the loss and the funds could be
returned to the customer . However,
if a third party somehow gains
access to your account and transacts
business that you wouldn't approve
of, you must contact the bank and
your local law enforcement
authorities, who have jurisdiction
over this type of wrongdoing. In any
event, it's always a good idea to
hold onto receipts for any deposits,
withdrawals or other transactions, at
least until they appear on your
bank statement.

For additional information, contact the
appropriate Regional Office of the
FDIC's Office of Consumer Affairs as
listed on Page 15.

•••

-----------c~~ Ntwi------------

Hate Malls? Find Parking a Hassle?
Try Shopping at the FDIC
Uncle Sam wants you...

to buy real estate,

furniture and other
pro~rtr acguired
from faded lianks
You've probably heard or read that
the FDIC has sold office buildings,
shopping malls, hotels and other
major properties to the public. But
did you also know the FDIC sells
homes, small business locations,
furniture and many other things
within the price range of the
average person?
The FDIC is in the sales business
because when an insured bank fails,
the agency must dispose of the
assets of the closed institution. This
responsibility is similar to that of a
trustee handling the bankruptcy of a
failed business. The FDIC uses the
income for two main purposes: to
replenish the insurance fund that
protects failed bank depositors, and
to minimize the losses suffered by
parties who are not protected by the
insurance fund, such as uninsured
depositors !those over the
$100,000 insurance limit).
Thousands of assets are sold each
year by the FDIC, with individual
items valued at everywhere from
under $100 to millions of dollars.
While many of the assets are sold to
healthy banks when the troubled
institution closes, many other assets
are not sold at that time and are later
offered by the FDIC to the general
public. These include:

■ Residential property, such as
single-family homes, condominiums

John Pace is port of the FDIC team in Westborough, Moss., that sells homes and other properties
acquired from foiled banks in New England. {Photo by Michael E. Castagna/The Worcester
Telegrom & Gazette)

and apartment complexes. The FDIC
also has a special "Affordable
Housing Program" that assists low and moderate - income households
in buying certain single-family homes
from the agency !see the box on
Page 9 of th is newsletter).

■ Commercial property, including
office buildings, retail centers, hotels,
resorts and golf courses.
■ Undeveloped land for potentia I
use as commercial or residential sites.

■ Furniture and equipment,
including computers, phone systems,
and fixtures and furniture from
bank offices.

■ Specialty items, such as crystal,
china, artwork and antiques.
■ Loans made by the failed bank,
which investors purchase as sources
of income.
Sorry, our sales aren't to be found at
your nearby mall or on a television
shopping channel. But buying from
the FDIC can be relatively easy. In
general, the FDIC uses four basic
approaches to sell assets to the public:
11 ) "sealed bid" sales, where buyers
submit written offers by a specified
date; 12) traditional "outcry" auctions,
where purchasers openly bid against
each other; 13) local real estate
brokers and other private sales

-----------C"~ Nt-wt1----------7

◄ The FDIC holds public auctions of
property, such as this art collection from
the closed Heritage Bank for Savings in
Holyoke, Mass ., as one way to recover
the costs from bank failures. {Photo by
Michelle Segall Brady/Springfield
Union-News)

A prospectivE; bidder inspects adding
machines for sale at the FD/C's 1993
auction of property from the failed
Heritage Bank for Savings in Holyoke,
Mass. (Photo by John Suchocki/
Springfield Union-News)

'Y

representatives; and 14) sales staff
from the FDIC's own Division of
Depositor and Asset Services, who
are located nationwide !see the
main sales centers listed on Page 9).

The FDIC is ;ust one of many
government agencies that sell real
estate and other assets to the public.
Such diverse agencies as the Defense
Department, the General Services
Administration, the U.S. Postal Service,
the Resolution Trust Corporation IRTC),
the Tennessee Valley Authority and the
Treasury Department sell various
goods and properties to the public.
These items include merchandise lost
and unclaimed in the U.S. mail; used
or surplus equipment and uniforms;

and real estate, cars and jewelry
that have been seized or forfeited.

To get information about upcoming
aoctions or other government sales,
check the classified or business
sections of national or local
newspapers. If you have a particular
agency in mind, get the phone
number from the telephone book and
contact the sales office closest to you.
If you need more assistance, call the
toll-free number for the Federal
Information Center, which is listed in
the U.S. Government pages in the
phone books for many metropolitan
areas. (Note: FDIC employees are
prohibited from buying assets from
the FDIC and the RTC.)

•••
8

Affordable Housing

FDIC Sales Centers
How can you find out more

The FDIC' s Affordable
Housing Program (AHP)
was established by a
l 991 law to provide
financial assistance to
lowond moderate-income
households who wish to
purchase homes the agency
acquires from failed institutions.
From the start of the program in
March 1992, through
November 1993 , the FDIC has
sold l ,432 properties at an
average sales price of about
$40,000 (85 percent of the
appraised value) .
The program relies on funding
from Congress, which provided
$5 million for fiscal year 1993
and $7 million for fiscal year
1994. Key features of the
program are:
■ Financial assistance is limited
to 10 percent of the purchase
price and is intended for help

with down payments, closing
costs and other expenses.

■ Qualified purchasers include
low- and moderate-income
buyers, non-profit organizations
and government agencies.
Eligibility standards will vary
according to geographical
location.
■ Eligibility standards for
properties also vary according

to geographic area . And, by
law, the properties must be
below set ceilings in terms of
appraised value. For example,

the cap on the value of a
single-family home or
condominium that can
be sold under the AHP
is $101,250. For a
four-family residential
property, the limit is
$160,000.

■ For l 80 days after the FDIC
acquires an eligible property,
we will only sell it to qualified
buyers. After 1 80 days, the
property can be sold to anyone,
but financial assistance would
only go to qualified AHP
participants.
■ AHP assistance comes with

restrictions on the buyer. If a
purchaser sells the home within
one year, 75 percent of the
profit must be given to the FDIC.
Also, purchasers are required to
live on the property for at least a
year.
The FDIC primarily uses
auctions, real estate brokers and
FDIC personnel to sell AHP
properties . For more information
on properties for sale, eligibility
requirements for purchasers, and
other related matters, contact the
AHP coordinator at an FDIC
sales centers listed on the right.
Or, check with a nearby office
of your state housing agency or
regional Federal Home Loan
Bank, both of which are listed in
telephone directories.

•••

about what's available for sale
from the FDIC? Contact a
regional service center of the
Division of Depositor and
Asset Services:

Northeast Service Center
(Connecticut, Moine, Mossachuseffs,
New Hampshire, New Jersey, New
York, Pennsylvania, Puerto Rico,
Rhode Island, Vermont, Virgin Islands}
Newport Towers
525 Washington Boulevard
Jersey City, NJ 07310
(201) 653-0100

Southeast Service Center
{Alabama, Delaware, District of
Columbia, Florido, Georgia,
Kentucky, Mory/and, Mississippi',
North Carolina, South Carolina,
Tennessee, Virginia, West Virginia)
285 Peachtree Center Avenue, NE
Marquis Tower II, Suite 300
Adanto, GA 30303
(404) 880-3000

Midwest Service Center
(Illinois, Indiana, Iowa, Kansas,
Michigan, Minnesota, Missouri,
Nebraska, North Dakota, Ohio,
South Dakota, Wisconsin}
30 S. Wacker Drive, 32nd Floor
Chicago, IL 60606
(312) 207-0200

Southwest Service Center
(Arkansas, Colorado, Louisiana, New
Mexico, Oklahoma, Texas}
1910 Pacific Avenue, Suite 1700
Dalas, TX 75201
(214) 754-0098

Western Service Center
(Alaska, Arizona, California, Guam,
Hawaii, Idaho, Montono, Nevada,
Oregon, Utah, Wash ington,
Wyoming)
25 Ecker Street, Suite 1900
San Francisco, CA 94105
(415) 546-1810

9

(Almost) All You Need to
Know About Those CRA Evaluations • • •
Bankers probably know what public
records they need to make available
under the main provisions of the
Community Reinvestment Act (CRAJ:
a public file that includes a
description of the bank's market
area, any CRA protest letters, and a
copy of their CRA Performance
Evaluation. Consumers, however,
may not be familiar with the
requirements of the Act and may not
be aware that, beginning July l,
1990, the evaluation, conducted by
the bank's primary federal regulator,
is a public document that anyone
can look at to find out how the bank
is performing its obligation to
serve the credit needs of its
community, including low- and
moderate-income neighborhoods.
A CRA Performance Evaluation is a
written report, based on an
examination, that describes an
institution's CRA performance taking
into consideration l 2 pre-established
assessment factors. The evaluation

also contains the institution's rating,
which is based on the examiner's
consideration of various CRA-related
factors including the public file and
the bank's performance relative to
the assessment factors. There are four
possible ratings: Outstanding (01,
Satisfactory (SJ, Needs to Improve
(NJ, and Substantial Noncompliance
(SN). Banks that receive a less than
Satisfactory rating (Nor SN) are
generally reexamined within l 2
months with additional visitations
and supervisory follow-up
as necessary.
Each of the four federal bank and
thrift regulators examines institutions
under its supervision for compliance
with the CRA. A copy of a bank or
savings association's evaluation can
be obtained at the institution.
Alternatively, a copy is available
from the regulators as follows:
■ National banks (usually identified

by the inclusion of the word

Regulators Seek Comments on CRA Proposal
President Ointon announced in July
1993 a CRA reform initiative to (1)
increase lending in undenerved
communities and (2) streamline, darify
and make the CRA regulatory process
more obiective. As a result, the four
bank and thrift regulators proposed to

replace 12 subjective factors now used
institution's CRA
pertomlonce with three "tests" using
objective, performance-based standards
in these areas: a lending test, a service
test and an inwstment test. Under one
port of the proposal, in lieu of the three
to assess oo

,o

tests, an institution would be permitted
to submit a strategic pion that includes
measurable goals for meeting its CRA
obligations.

The agencies gathered the views of
more than 250 witnesses at seven
hearings held around the country
during August and September of 1993
before issuing the proposed changes
for comment. Details about the
proposed changes are ovoiloble from
any of the agencies at the addresses
provided on Page 15.

"national" or the initials "N.A." within
the institution's official name):

Office of Corporate Communications
Comptroller of the Currency
250 E Street, S.W.
Washington, D.C. 20219
■ State-chartered banks: Two
agencies are involved here - the
Federal Reserve Board supervises
about l ,000 state-chartered banks
that are members of the Federal
Reserve System, and the Federal
Deposit Insurance Corporation
supervises about 6,700
state-chartered banks that are NOT
members of the Federal Reserve
system. (National banks MUST
belong to the system; state-chartered
banks may decide to be members
or not.)

For state-chartered banks that are
members of the Federal Reserve
System, write to:
Board of Governors of the
Federal Reserve System
FOIA Office
20th Street and Constitufon Ave., N.W.
Washington, D.C. 20551
For state-chartered banks that are
NOT members of the Federal
Reserve System, write to:
FDIC Reading Room
Room 7118 Main Building
Federal Deposit Insurance Corporation
Washington, D.C. 20429
Consumers generally would have no
way of knowing which of the two
agencies supervises a state-chartered
bank, unless they ask at the institution
itself. A phone call requesting the
name of the institution's primary
supervisor should produce the

----------CIJ~N~-----------

information, but if for some reason
the answer is not forthcoming, write
to the FDIC at the address on Page
10 and we will handle your request
or forward it to the Federal Reserve
Board if appropriate. !The FDIC
maintains a printout of all insured
institutions that indicates the specific
type of institution and thus the
primary supervisor .)
■ Savings Associations (S&Ls) : The
Office of Thrift Supervision IOTSJ,

which supervises savings
associations (S&Lsl, handles requests
for evaluations from its regional
offices. For example, OTS' Atlanta
office handles savings associations,
including their CRA evaluations,
located in Alabama, the District of
Columbia, Georgia, Maryland,
North Carolina, South Carolina,
Virginia, Florida, Puerto Rico and the
Virgin Islands.

For a list of OTS regional offices,
write to:
Office of Consumer Affairs
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
For more information about the
Community Reinvestment Act, the
Federal Financial Institutions
Examination Council has published a
comprehensive booklet called "A
Citizen's Guide to the CRA," which
describes the requirements of the
Act, CRA and the applications
process, and the role citizens can
play. The booklet also contains maps
and addresses of the supervisory
agencies' district and regional
offices . A copy of the booklet is
available from the FDIC's Reading
Room at the address given earlier in
this article.

Access to Appraisals
Under new rules from the Federal
Reserve Board, consumers soon will
find it easier to obtain the property
appraisal used by a lender in
approving or denying a mortgage
or business loan. The rules carry out
a 199 l change in the Equal Credit
Opportunity Ad that gives loan
applicants the right to receive the
appraisal report as one way to
prevent illegal discrimination against
minorities or other consumers. The
idea is that if a lender rejects a loan
because of an appraisal that
undervalues the properties in a
neighborhood, the applicant has
more documentation to challenge
the loan denial or even file a
discrimination claim.
An appraisal report also could
serve other purposes for a
consumer, such as providing
another opinion on the value of the
property, which might give you
more leverage in negotiating the
final sale.
The new rules require lenders to
either automatically provide
appraisal reports to all applicants or
notify all applicants of their right to
receive the report. Lenders are not
required to begin complying until
June 6, 1994. For more information,
write to the Federal Reserve at the
address listed on Page 15 of
this newsletter.

Mutual Institutions
The FDIC and other federal
regulators are reviewing and

strengthening the consumer
safeguards when savings and
loans or savings banks convert
from mutual institutions to
stockholder - owned. Most of these
conversions have occurred or are
pending in the Northeast but also
in states such as Wisconsin, Illinois
and North Carolina .
A mutual institution has no
shareholders. It often is described
as being "owned" by the
depositors because, in most cases,
they have certain rights and votes
usually associated with ownership.
Among the regulators' concerns
ore that, in some cases, the
converting institution's officers,
directors and other "insiders" may
deliberately set the initial stock
offering price too low, or obtain
more than a fair shore of the stock,
or receive bonuses or other
compensation considered
excessive. These insiders could
reap large "windfall" gains at the
expense of depositors or others
who do not buy stock or were not
offered the favorable terms given
to the insiders.
The FDIC' s response included an
"emergency" regulation adopted
February 8 that will result in closer
scrutiny of conversion applications
and, if necessary, efforts to prevent
unfair or unsound conversions. If
you have information about
alleged abuses or questions about
what the regulators are doing to
protect the public, write to the
agencies listed on Page 15.

•••

•••

------------C"~ NtW-1-----------

11
-

Bank Failures in 1993 Hit 12-Year Low;
But if Yours Fails, Do You Know What to Expect?
By the end of 1993, 41 failures
were on the FDIC' s books for the
year, the lowest annual number since
l 98 l . But at least one bank has
failed each year but one since the
FDIC began official operations in
1934, so some customers
somewhere may experience a bank
failure in 1994. What if your bank
fails? Do you know what to expect?
Following are some of the most
frequently asked questions and
answers about bank failures.

How do I know if my bank
has failed?
The FDIC is usually named receiver
(a role comparable to that of a
trustee in a corporate bankruptcy) of
a failed institution when it is closed
by its chartering authority - the
Comptroller of the Currency for
national banks, the state for
state-chartered banks. Both the
chartering authority and the FDIC
issue press releases that are widely
distributed as soon as the bank is
closed so that local radio and TV
stations will make the appropriate
announcements. Newspapers would
carry the story the same or next day.
If you miss the media announcements
and visit your bank after it has been
closed, you will find signs posted on
the door informing you that the
institution has been closed. In most
cases you will be informed that you
now will be doing business with a
new institution that has acquired the
failed bank. You may see temporary
signs on your bank building with the
institution's new name. And, the

12
- -

acquiring institution often advertises
in the local media.
In those cases where an acquirer for
the failed institution cannot be found,
the FDIC pays off depositors ·(the
transaction is called a payoff) and
usually will mail you a check for the
amount of your insured funds. In
some instances, you will be asked to
come to the bank's offices to receive
your check, typically on the next
business day. If there is an
outstanding loan or questions about
your account, you will be asked to
come into the bank to resolve
the matter.
[Note: If a savings association
(savings and loan) fails, it would be
closed by the Office of Thrift
Supervision (formerly the Federal
Home Loan Bank Board) and the
Resolution Trust Corporation (RTC)
would be responsible for selling the
failed institution to a healthy one.
The institution would be placed in
conservatorship
and managed by
the RTC while it
attempts to find a
buyer. In some
instances, several
acquirers may
be involved.]

service. (Occasionally automated
teller machines may be out of service
for a short period.) Offices of the
"new" bank generally open for
business on the next business day.
In a payoff, the FDIC usually begins
mailing checks to customers for their
insured funds a few days after the
failed bank is closed. It's always
important to notify your bank
promptly of any change in address
so you will receive timely information
about ANY developments affecting
your accounts.

What happens to my
accounts at the failed bank?
Do they simply become
accounts at the
acquiring institution?
Yes, the assuming bank is now your
bank. However, you should visit the
acquiring bank soon after your bank
fails to re-establish your banking
relationships. This process, which is
called ratifying your accounts, can

When can
I get to
my money?
If another
institution takes
over your failed
bank, you should
experience no
disruption in

FDIC staff of bank closings explain how the agency protects.
depositors. Here David Borr from the Office of Corporate
Communications in Washington meets with customers of o foiled bank
in Missouri. (Photo by Mory E. Schulte/The Kansas City Star)

-----------C"~ N~------------

of failure would

also be accomplished simply by

government annuity funds available

the time

performing a transaction such as a

to the failed bank's customers. In a

deposit or withdrawal, including
writing a check. As a customer of a
failed bank acquired by another
institution, you would receive a
notice concerning this requirement.
It's especially important to visit the
acquiring institution if you hold

payoff, customers who had ANY
type of direct deposit, including
Social Security and items such as
paychecks, or automatic withdrawal,
such as direct payment to utilities,
will need to establish new
arrangements when they open new

and you would need to replace them
with checks written on a new

long-term certificates of deposit (CDs)
because any account not ratified
within 18 months of the acquisition
of the failed bank is considered

accounts elsewhere. When a payoff
occurs, notices about how direct
deposits such as Social Security
checks ore being handled are

dormant and funds could revert to the
state, depending on state law.

usually displayed at the failed
bank's offices.

I have direct deposit for my
Social Security checks. What
happens if my bank fails?

Can I use checks and deposit
slips from the failed bank at
the new bank?

If the failed bank is acquired by
another institution, ALL direct
deposits, including Social Security,
will continue at the new bank
automatically. If the FDIC cannot find
an acquirer for the failed bank and

Yes. The acquiring bank will accept
the checks and deposit slips of the
failed bank. You will receive
information about new checks and
deposit slips from the acquiring
bank. If your bank fails and closes
and there is no acquiring institution,

conducts a payoff, it will ask a
nearby institution to take over the
direct deposit function temporarily

you should destroy checks and
deposit slips with the failed
bank's imprint.

and make Social Security and

Bank Failures, 1981-1993
1ft

~

C 250

a

~

1200

=a
... 150

.J

0100

E
:,

z

50
0

'81

'83

'85

'87

'89

'91

'93

FDIC-insured bank failures are at their lowest level in 12
yeors, but that doesn't meon you should be careless about
whether your deposits are fully protected under the rules.

be returned

account that you establish elsewhere
following the failure. The people or
businesses to whom you have sent
checks that are returned because
your bank failed usually understand
the situation and do not penalize you.

Is it true that an acquiring
bank can lower the interest
rate I was receiving on my
CDs at the bank that failecl?
Yes. In most cases, an acquiring
bank is not required to honor the
contract you made with the failed
bank when you purchased the CDs.
But you can withdraw your funds
without pena !ties for l 4 days
following the closing of the
failed bank.

Whathaepenstoloanslhad
at the faded bank?
You are still liable for any payments
due on loons made to you by the
failed bank, such as automobile,
second trust, and mortgage loans.
The same is true for credit cord

What if I have
written checks
on an account at
a failed bank
and the checks
haven't cleared
when the bank
is closed?

balances. Continue making
payments just as you did before the
bank failed until instructed in writing

As stated in the
answer above, an
acquiring bank will
honor checks written
on accounts in the
failed bank.

mortgage servicing companies, so
you may receive a notice to that
effect from the new institution or
company. The terms of your
mortgage typically ore NOT affected
by this change.

However, if the FDIC
cannot find an

by the acquiring bank (or the FDIC if
there was no acquirer) to do
otherwise. Mortgage loans ore often
sold to other financial institutions or

What happens to my line of
credit at a bank that fails?

acquirer and pays off
insured depositors,
checks outstanding at

------------C"~

The acquirer of a failed bank may
choose to continue permitting

3

~l-U/4 _ _ _ _ _ _ _ _ _ _ _, _

withdrawals against an unused
portion of a line of credit established
with a bank that subsequently failed,
or it may not. That is strictly a
business decision of the acquiring
institution, which in most cases is
under no obligation to honor a line
of credit agreement made with a
failed bank. The acquiring bank may
buy your revolving credit or other
type of loan agreement at the time it
purchases the failed bank,
depending on your payment history
and other factors. In any event,
payments on the amount you have
drawn should be made as before
until other instructions are received.
You should contact the new bank
regarding the status of your line
of credit.
If there is no acquirer of your failed
bank and the FDIC pays off insured
depositors, lines of credit will be
discontinued (but payments on any
outstanding balances still must be
made). The FDIC does not serve in
the place of the failed bank by
maintaining lines of credit
established with a bank that
later fails.
Customers of failed banks for which
the FDIC cannot find an acquirer
should establish new banking
relationships with other financial
institutions in the area. Those
customers who had lines of credit at
the failed bank can apply to
establish the same type of
arrangement at their new
financial institution.

How do I get access to my
safe deposit box at a
failed bank?
If an acquiring bank takes over your
bank, including an office where you

have a safe deposit box, you should
be able to conduct business as
usual. In a payoff, boxes are made
available for several weeks after the
bank closes so that boxholders can
remove the contents. Boxholders may
then obtain a box at another
institution if they wish. Information for
boxholders would be displayed at
any closed office con ta in ing safe
deposit boxes, and media coverage
of the failed bank also may
include information for safe
deposit boxholders.

If the bank office is closed,
what are all those people
doing in the building?
Those ore probably FDIC staff from
various locations who have been
called in to prepare the bank's
records for the transfer of accounts to
an acquirer or for a payoff to
depositors. Other FDIC staff go
through the bank's records to
determine which assets (loans,
especially) can be sold, what legal
matters are outstanding (all are
inherited by the FDIC), whether any
fraud was involved in the bank's
demise, and other issues. Other staff
inventory the contents of the bank's
offices, such as furniture, artwork,
computers, and so on - also with the
goal of determining exactly what's
there before selling it. Employees of
the failed bank and the acquiring
bank, if there is one, are also at
work with the FDIC's employees.

Why does a bank fail?
A bank that fails usually has had the
same problems as any other business
that fails - its debts were greater than
its assets. Corporations with liabilities
greater than assets, and which have
exhausted all possibilities for

additional funds, often close their
doors and file for bankruptcy (a court
proceeding). Banks in a similar
financial condition (not meeting
capital requirements set by
regulators) may also have no other
realistic remedies, such as a cash
infusion or an acquisition by another
institution, and are generally judged
to be insolvent and are closed by
their chartering authority.
The unusually large number of bank
failures in the last decade or so was
mostly due to severe declines in
certain industries or sectors of the
economy, beginning with agricultural
problems in the Midwest, then oil
price declines in the Southwest, and
finally real estate problems in the
Northeast, California and elsewhere.
Some of the more than 1,400 banks
and 700 savings institutions that
failed between 1982 and 1992
were victims of fraud and other
criminal activities . Some of their
names, and the principals involved,
are well-known now and may give
the impression that stealing
depositors' funds to create the like of
leather-walled offices with gold
fixtures was a common occurrence.
In fact, relatively few failures were
caused by these types of activities.

For more information:
If you have specific questions about
bank failures, write to the FDIC's
Office of Consumer Affairs,
Washington, DC 20429. For more
information about savings institution
failures, write to the Office of the
Ombudsman, Resolution Trust
Corporation, 801 Seventeenth
Street, N. W., Room 315,
Washington, DC 20434.

•••

-----------c~~ Ntw1-----------

4
-

The FDIC offers protection to
consumers by insuring deposits up
to $100,000. The FDIC, as well as
other regulatory agencies, enforces
rules that promote sound banking
practices, compliance with consumer
protection and civil rights laws.
These protections include:
prohibitions against discriminatory
lending practices; initiatives to
prevent unfair or deceptive practices
in deposit taking or lending; and
rules that encourage institutions to
meet local credit needs.

Federal Deposit
Insurance Corporation
Supervises state-chartered banks that are
not members of the Federal Reserve
System. Operates the Bank Insurance
Fund and the Savings Association
Insurance Fund.

Office of Consumer Affairs
550 17th Street, N .W.,
Washington, DC 20429
Phone 800-934-3342 or
202-898-3773

A~anta Region (Alabama, Florida ,
Georgia, North Carolina,
South Carolina, Virginia, West Virginia):
245 Peachtree Center Avenue, NE,
Atlanta, GA 30303

Boston Region (Connecticut, Maine,
Massachusetts, New Hampshire,
Rhode Island, Vermont):
200 Lowder Brook Drive,
Westwood, MA 02090

Chicago Region (Ill inois, Indiana,
Michigan, Ohio, Wisconsin):
30 S. Wacker Drive, Suite 3100,
Chicago, IL 60606
Dallas Region (Colorado, New Mexico,
Oklahoma, Texas):
1910 Pacific Avenue, Suite 1900,
Dallas, TX 75201

For questions about deposit
insurance coverage: Contact the
FDIC at the appropriate regional
office of the Division of Supervision,
or the FDIC' s Office of Consumer
Affairs, listed below.

Kansas City Region (Iowa, Kansas,
Minnesota, Missouri, Nebraska,
North Dakota, South Dakota):
2345 Grand Avenue, Suite 1500,
Kansas City, MO 64108

For questions about consumer or
civil rights laws, or complaints
involving a specific institution: First
attempt to resolve the matter with the
institution. If you still need assistance,
write to the institution's primary
regulator listed on this page.
Although the FDIC insures nearly all
banks and savings associations in
the United States, the FDIC may not
be the primary regulator of a
particular institution.

•••
Office of the Comptroller
of the Currency
Charters and supervises national banks.
(Often the word "National" appears in
the name of a national bank, or the
initials "N.A." follow its name.)

Memphis Region (Arkansas, Kentucky,
Louisiana, Mississippi, Tennessee):
5100 Poplar Avenue, Suite 1900,
Memphis, TN 38137

New York Region (Delaware, District of
Columbia, Maryland, New Jersey, New
York, Pennsylvania, Puerto Rico,
Virg in Islands):
452 Fifth Avenue, 19th Floor,
New York, NY 10018
Son Francisco Region (Alaska, Arizona,
Cal ifornia, Guam, Hawaii, Idaho,
Montana, Nevada, Oregon, Utah,
Washington, Wyoming):
25 Ecker Street, Suite 2300,
San Francisco, CA 94105
Some banking matters may involve state lows.
For assistance on these matters, please contact
the appropriate state financial institution
regulatory agency or state Attorney General's
office .These state offices usually ore listed in
your telephone book and other directories.
For information ooout credit unions, contact the
Notional Credit Union Administration, Office
of Public and Congressional Affairs, 1775
Duke Street, Alexandria, VA 22314-3428.
Phone 703-518-6330 .

------------C"~

Compliance /v\:magement Division,
250E St., S.W., Washinglon, OC 20219
Phone 202-874-4820

•

Federal Reserve System
Supervises state-chartered banks that are
members of the Federal Reserve System.
Division of Consumer and Community Affairs,
20th Street and Constitution Avenue, N.W.,
Washington, DC 20551
Phone 202-452-3693

•

Office of Thrift Supervision
Supervises federally and state-chartered
savings associations as well as federally
chartered savings banks. (The names of
these institutions generally identify them
as savings and loan associations,
savings associations or savings banks.
Federally chartered savings associations
have the world "Federal" or the initials
"FSB" or "FA" in their names.)
Consumer Affairs Office,
1700 G Street, N.W.,
Washington, DC 20552
Phone 800-842-6929 or
202-CX)&6237

N4V4 ___________,_s

Coming in the Next Issue...
■

How to get infonnation about the heall'1 of
your&anlc...

■

The Mailx,g: Answer.I ID your (fUfMfio,u about
deposit insurance and olher consumer p,of8dions...

Read the next issue of FDIC Consumer News for

news and inlo,11Kllion on ,,,._ and olher
topics ol interest lo c:onsumen from lhe

Federal Deposit Insurance Co,po,'Olion.

Please Write!
Is there an issue you'd like
addressed or a question
you'd like answered in

FDIC Consumer News?
Please send your thoughts and
suggestions to:

Jay Rosenstein
Senior Writer-Editor
Office cl Corporale Communicalions
Federal Deposit
Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429

BULK RATE
MAIL
Federal Deposit Insurance Corporation
Washington, DC 20429-9990

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P-1400-105.1-94