Banks Quietly Refund Mutual Fund Investors
Gullo, Karen, THE JOURNAL RECORD
NEW YORK _ A barrage of complaints from bank customers who claim they were misled when they bought mutual funds has evoked an unusual response: some banks are quietly making up losses for people who swear to shut up about it.
Banks are reimbursing customers who lost money when the funds fell in value, say customers, consultants and lawyers. Others are waiving sales fees or letting customers withdraw money from funds without paying penalties.
These payments aren't illegal, and banks say they reflect an effort to be responsible. But the payments also coincide with intense criticism of banks from consumer activists, regulators and lawmakers over what they call deceptive sales of mutual funds by banks.
Unlike bank savings accounts, mutual funds aren't insured against loss. Some bank customers who bought the funds said they didn't understand the difference.
The settlements, usually made without formal legal proceedings, can range from hundreds to thousands of dollars, sources familiar with them said. Before turning the money over, however, banks make customers sign an agreement that prohibits them from talking about the settlements.
The deals are "very carefully and quietly done," said Dick Ayotte, managing partner at American Brokerage Consultants Inc., a firm in St. Petersburg, Fla., that advises banks about selling investments.
In bank lobbies all over the country, many sales agents are now aggressively pitching stock and bond mutual funds, which are pools of professionally managed money that are the most popular way for Americans to invest in the markets.
Critics say some banks have abused their image as pillars of safety and exploited customer ignorance by convincing them to switch money from safe federally insured accounts to riskier alternatives.
Banks deny they're doing anything improper. But lawyers who represent irate customers say the banks may be paying people off to avoid publicity and costly court battles.
For banks, there's a lot at stake. They're hungry for fees from mutual fund sales and want to compete with brokerage firms. Some have stumbled along the way.
Customers who've bought funds and lost money have sued banks, claiming brokers didn't disclose the risks or say the funds weren't insured.
NationsBank Corp., one of the banks facing customer lawsuits, has settled a few dozen customer disputes by reimbursing losses and waiving sales charges, said customers who spoke on the condition of anonymity.
Customers must sign forms that prohibit them from suing the bank or disclosing "directly or indirectly, orally or in writing, spontaneously or in response to inquiry. …