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
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
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
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
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. …