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Money Tips for Small Businesses

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Added Protections For Credit Records 12..........News Briefs

Countering Confusion Over Investment Sales 14.....

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News and Information On Consumer Issues from the Federal Deposit Insurance Corporation

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A guide to finding your lost or forgotten bank accounts, jewelry and other valuables

Can you find the

in this picture… and in your own financial picture?

FALL 1996

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If you’re Ann Roman (also known asRuth Doorman) of Chester, NewYork, or if you’re an heir to herestate, we recommend that you run,not walk, to the nearest telephone tocall the New York State Office ofUnclaimed Funds. Don’t worry if it’sa long-distance call; you can affordit. That’s because New York has asubstantial amount of money (we’reprevented from saying just howmuch) waiting in bank accounts,investments and other assetsabandoned by Ms. Roman in themid-1980s.

Even if you’re not Ann Roman or herheir, we suggest you keep reading.This report can help direct you tolost or forgotten property, from asmall sum ($100) to a small fortune(like the $900,000 in unclaimedassets New York recently paid to theEuropean heirs of a former NewYork City resident).

According to published reports, stateagencies across America may beholding $8 billion in abandonedbank accounts, investments andother assets, while Federal agenciescould have about $18 billion inunclaimed funds. These dollaramounts may even be too low —and they don’t include forgottenfunds still held at U.S. businesses orthe money American citizens haveleft behind in foreign countries (seeour story on Page 6).

All sorts of property getsabandoned. At banking institutions,

the list includes checking andsavings accounts as well as jewelryand other valuables in safe depositboxes. Investments usually involvemutual funds, stocks, bonds(including U.S. Savings Bonds),along with interest and dividendchecks. Frequent flyer miles arefrequently forgotten, as arepaychecks, retirement and disabilitychecks, life insurance policies, giftcertificates, money orders, cashier’schecks, traveler’s checks, and rentand utility deposits.

But how can you “lose” these assetsin the first place? It’s easier thanyou think. You could have movedaway, never given a forwardingaddress and forgotten about themoney. You could have changedyour name and not notified yourbanks and other companies. Youmay be unaware of the money

entirely — perhaps because it wasgiven to you as a child or youinherited it — and now the peoplewho have it for you can’t track youdown. Or you could have lostfinancial records in a flood, fire oreven a spring-cleaning binge.

The rules governing unclaimed bankaccounts vary from state to state.But in general, after about two ormore years without activity —you’ve made no deposits orwithdrawals, you haven’t cashed acheck — and after efforts to reachyou fail, the property will beconsidered abandoned and will“escheat” (a fancy legal term forbeing transferred) to the state of yourlast known address.

Hidden Assets: Out of Sight...Out of Mind...Out of Luck?

Not if you follow our tips for finding some of the billions of dollarsin lost or forgotten money that could belong to you

Hidden Assets

Massachusetts state employees displaya printout of the names of owners towhom property recently was returned.

Robert J. Levy/Pennsylvania Treasury

Pat Greenhouse/The Boston G

lobe

A beaming Verla Read Phillips is about toreceive a $26,867 check from Pennsylvaniatreasurer Catherine Baker Knoll. She firstspotted her name on a list of unclaimedproperty owners in her local newspaper.

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But just because money or propertyhas been turned over to the statethat doesn’t mean you’ve lost itforever. “The state becomes thecustodian of the property on behalfof the owner,” says Bill Slade,president of the New York-basedNational Abandoned PropertyProcessing Corporation. “Even if thestate can’t locate you and it sellsyour property, you still have the rightto come forward at any time toclaim its value.”

FDIC Consumer News has puttogether the following list ofsuggestions to help you uncover andrecover your forgotten funds.

1. Search old records forinformation about bank accounts,investments, properties, pensionsand other assets. In Denver, awoman was able to cash in 10-years’ worth of dividendpayments only because she foundsome old stock certificates inside thewell of her baby grand piano. Youmight not be so lucky. Be preparedto look through old tax returns, loanapplications, bank statements, creditreports, checkbooks, pay stubs, wills and other financial records.Consider calling the bankers,insurance agents, stockbrokers,accountants and other professionalsyou’ve dealt with to see if they haveuseful information or even justbackup copies of key documents,such as tax returns and statements ofearnings reported to the IRS. Theserecords — and their listings ofsavings, investments and other assets — can significantly improveyour chances of discovering lostmoney and proving your right to ownership.

“Keep in mind that the age ofelectronic databases is very recent,”says John Kotsiras, a consumeraffairs specialist with the FDIC’sDivision of Compliance andConsumer Affairs in Washington.“Government agencies and privatecompanies may have to checkpaper records, so the moreinformation you can provide to them the faster your claim can be processed.”

Although banks and other businessescan be important resources for yoursearch, don’t expect them to keepdocuments indefinitely. “We hearfrom people wanting a copy of acheck they wrote in 1981 or a bankstatement from 1969, but banks areonly required by state law tomaintain customer records for alimited period, on average aboutseven years,” says Lesylee Sullivan,who is in charge of an FDIC officein Atlanta that handles consumerclaims against failed institutions.

2. Contact the state unclaimedproperty office in the states whereyou or your benefactors have livedor conducted business. By law, thestates must attempt to locate theowners of the abandoned bankaccounts, investments and otherproperty they’ve received. They’ll tryto match Social Security numberswith tax records or driver’s licenseinformation. They’ll try mailings,newspaper ads and postings on theInternet. The states even sendemployees with laptop computers toshopping malls, county fairs andother busy places, encouraging youto “step right up,” conduct a quick,no-cost database search and, if

FDIC Consumer Newsis published by the Federal DepositInsurance Corporation

Ricki Helfer, Chairman

Robert M. Garsson, Jr., Director,Office of Corporate Communications

Elizabeth Ford, Assistant Director,Office of Corporate Communications

Jay Rosenstein, Senior Writer-Editor

Larry A. Webb, Graphic Designer

FDIC Consumer Newsis produced by the Office ofCorporate Communications, incooperation with other FDICDivisions and Offices. It is intended to present information in a nontechnical way and is notintended to be a legalinterpretation of FDIC regulationsand policies. Mention of a product,service or company does notconstitute an endorsement.

This newsletter may be reprinted in whole or in part.Please credit material used to FDIC Consumer News.

Comments, suggestions or questions may be sent to:Jay Rosenstein, FDIC, 550 17th Street, NW,Washington, DC 20429. Internet: editorconsnews@fdic.gov

Subscriptions

Subscriptions to FDIC ConsumerNews are available free ofcharge. Requests for subscriptionsor address changes should beprovided to:

FDIC, Public Information Center,801 17th Street, NW, Room100,Washington, DC 20434.Phone: 800-276-6003 or202-416-6940Internet: publicinfo@fdic.gov

(Continued on next page)

Hidden Assets

4 FDIC

you’re lucky, walk away with a lotmore than a kewpie doll.

So why should you contact the statedirectly? At least three reasons: thestate’s attempts to contact you don’talways succeed; the state won’tcharge you for a search while aprofessional search firm would; anda knowledgeable state worker canguide you in your quest for propertyin other states.

To get the address or phone numberfor a state’s unclaimed propertyoffice, check the state governmentlistings in the telephone book. Thisoffice often will be part of the statetreasurer’s department. If you haveaccess to the Internet, you can lookup the state agencies on theNational Association of UnclaimedProperty Administrators’ home page(http://www.intersurf.com/~naupa).The NAUPA’s Internet site providesother helpful information, includinglists of “wanted” owners ofunclaimed property in certain states.

3. Contact financial institutions,former employers, landlords, utilitiesand other people you suspect stillowe you money. Companies alsoare required by law to try to trackdown owners of unclaimed propertybefore transferring the assets to thestate. But some companies arebetter at this than others, so write orcall them just to play it safe.

Don’t forget about unclaimed moneyyou may have in the form of an oldcheck you never cashed ordeposited. You still have the right tothat money. If your bankinginstitution won’t accept the checkbecause it’s more than six monthsold— the legal limit before a check

is considered “stale”— you can goback to the source and demand thata new check be written.

If you can’t locate a company onyour own, ask a librarian,stockbroker or someone else tocheck a business directory. If it’s abank you’re looking for, the FDICprobably can help. We keep astatus report for every FDIC-insuredbank going back to 1933. Thisinformation will show, for example,if the bank was bought by anotherbank, changed names or locations,or closed. Write to the FDIC’sOffice of the Executive Secretary,Record Services Group, 550 17thStreet, NW, Washington, DC20429, or call (202) 898-3814.(For information about “missing”savings associations or creditunions, contact the appropriateregulatory agency listed on Page 15).

4. Be on guard against fraud.Many excellent “tracer” companies,for a fee based on actualrecoveries, will help people whodon’t want to take the time toresearch unclaimed property or

whose cases may be unusuallycomplex. But other companies arescams devoted to separating youfrom your money, not helping youfind it.

A con artist might contact you about“inside information” regarding assetsdue to you. This person probablywill be rather secretive about thesituation and demand money up-front for help reclaiming yourproperty. In reality, this personprobably only has the same list ofunclaimed property available toeveryone from state and federalagencies. Don’t be suckered in,and don’t pay a thing up-front. Byfollowing the steps outlined in thisreport, you can find the propertyyourself.

We also regret to say that foul playcan explain why some moneydisappears from accounts,especially involving the elderly orminors. “Shenanigans dosometimes occur because of afinancial institution employee, afamily member or friend,” saysRonald Lively of the FDIC’s Office of Legislative Affairs in

Hidden Assets

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A Map to the Treasures Hidden on Our Cover

Certificate of deposit U.S. Savings Bond U.S. currency Willed inheritance Airline tickets Silverware Diamond ring Key for safe deposit box Uncashed check String of pearls Pocket watch Stock

1. 2. 3. 4. 5. 6. 7. 8. 9.

10. 11. 12.

5FDIC

Washington. “If the pieces of thepuzzle don’t fit together after you’vecontacted the usual parties — theinstitution, the regulatory agency, thestate — you might want to consultan attorney or an accountant.”

5. Don’t forget about unclaimedfunds in the Federal government.These assets include billions inuncashed tax refunds, U.S. SavingsBonds and Treasury securities,mortgage insurance refunds from theU.S. Department of Housing andUrban Development, Social Securitybenefits and veterans’ benefits. Tofile or research a claim, contact theappropriate federal agency.Special rules and limits may apply.For example, IRS spokesmanAnthony Burke says that claims forold tax refunds generally must befiled within three years of the dateyou filed your return.

The FDIC occasionally winds upwith temporary possession ofdeposits and contents of safedeposit boxes left in failed banksand savings institutions. Dependingon when the institution failed (theUnclaimed Deposit Amendment Actof 1993 changed the rulessignificantly), the FDIC may havepossession of the asset or it mayhave transferred the property to anassuming bank or to the state. Forinformation, call or write an FDICoffice listed on Page 15 and askthat your questions be directed tothe nearest regional office thatmanages assets acquired from failed institutions.

Final Thoughts

Following our suggestions may notlead to a $900,000 windfall, or

Tips for Preventing Money fromGetting Lost in the First Place

■ Keep a list of your deposits,investments, insurance policies, pensionbenefits, contents of safe depositboxes and other assets. Update yourlist annually, especially to note whichaccounts have been cashed in ortransferred elsewhere. Otherwise,some yellowed passbooks, certificates orinsurance policies could show up yearsfrom now and send a lot of people on a wild goosechase. (Remember: You don’t need to turn in an original passbook orcertificate to close an account; an affidavit or some other legally bindingstatement will do.)

■ Make sure the people who owe you money have your correctaddress. When mail continually gets returned or never gets delivered, it’seasy for people to lose track of you, and vice versa. So if you changeaddresses, give your new location and telephone number to your banks,brokers, insurance companies and others who need to know. Do it inwriting; don’t rely on a phone call. Also fill out a change of address formwith the post office. And if you discover that bank statements, dividendchecks and other regular mailings stop coming, contact the sourceimmediately.

■ Try to understand your rights and responsibilities for preventinglosses. Look at any brochures, contracts and other handouts to see whatthey say about when an asset is considered abandoned. Keep a copy inyour files. If you don’t understand what they say about your rights andobligations, ask for a clarification.

Hidden Assets

even a $90 reward, but we thinksome worthwhile benefits will comeyour way. At the very least, you’llprobably end up taking better careof your financial affairs and records.But we also think your search couldlead you to priceless treasures —old family pictures, letters and othermemorabilia that could bring youlaughter or tears. Your search may

$$LOST & FOUND

even bring you in contact withrelatives you’ve lost touch with ornever knew you had. So getstarted! Open those old cardboardboxes, snoop around the attic, evenlook inside the well of your piano.This could be the most importanthouse-cleaning you will ever do.

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FDIC6

When families emigrate from onecountry to another, they may leavebehind more than memories.Valuable assets — family homes,other property, bank accounts —may be left in the “old country.”As time passes, the originalowners may lose track ofholdings overseas. Parentspass on, leaving property tosons and daughters who maynot have complete informationabout the holdings of a previous generation.

It’s never easy tracking lost accounts,and it’s especially difficult when theproperty or the information about it isin some other country. As withunclaimed property in the U.S., themore you know about the accountyou seek to retrieve, the better.Account numbers, dates, names oforiginal or current account ownersand their heirs, and exact accountbalances are all vital pieces ofinformation that greatly increase yourchances of success.

Most banking institutions, whetherhere in the U.S. or overseas, havesome limitation as to when aninactive account is consideredabandoned and therefore liable to confiscation by the governmentunder a process called “escheat”(see the box on the right).Depending on the laws of thecountry controlling the assets, thistime period can be lengthy or brief.Likewise, the level of cooperationfrom a government in retrieving

lost funds can be extensive andhelpful or limited to the point ofbeing hostile.

Fortunately, there are U.S.government agencies that can help Americans deal with the widevariety of circumstances that can arise in recovering funds from overseas.

“At one time or another, we’ve justabout seen it all,” said CarmenDiPlacido, an attorney with the U.S.State Department’s Overseas CitizenServices, in an interview with FDICConsumer News. “We’ve had todeal with American citizens who dieoverseas, without an heir, leavingextensive holdings in variousaccounts. We’ve worked withAmericans who invested heavily in acountry that encouraged foreignersto open accounts and then saw achange in government that led toforeign accounts being frozen.We’ve helped people with new

accounts and all the accountinformation, as well as people twoor three generations removed from

the original account holder andwho knew next to nothing aboutthe account, where it was orhow much was in it — onlythat Grandpa once told themthere was one.”

DiPlacido explained that everycase is different, depending

largely on the country and whetherthe person needing help is anAmerican citizen, a current orformer citizen of the country inquestion, or someone holding dualcitizenship. “Because of all these

Es-WHAT???escheat: Pronounced ess-CHEET. From the Latin ex (out)and cadere (to fall). It’s anunusual word but one thatyou’re likely to encounter inconnection with unclaimedproperty laws and protectionsin the U. S. and abroad.

Most dictionaries trace theorigin of this word to the dayswhen land and other propertywas returned to the lord of themanor (in feudal law) or to thecrown (in England) when therewere no legal heirs. In theU.S., the concept generallyapplies to unclaimed propertytransferred to the stategovernment after a “dormancy”period set by state law. Butunlike property transferred tothe king, property escheated tothe state in the U.S. will bereturned to the rightful owner.

Hidden Assets

Long Ago and Far Away: Old Money in the “Old Country”Tracking “lost” accounts overseas can be a complex chore.

Here’s some advice on getting started.

7FDIC

Sources of Foreign AidCall or write the following U.S. government offices if you need helprecovering property overseas and you don’t know where to start.Depending on the circumstances, assistance may be available for little or no cost.

■ Overseas Citizen Services, U. S. State Department, Room 4817, 2201“C” St. NW, Washington, DC 20520 (phone 202-647-3666). It serves asa clearinghouse for many types of cases. If this office can’t help directly, itprobably will be able to point you to the right government agency or privateattorneys and associations involved with property claims.

■ Foreign Claims Settlement Commission, U.S. Justice Department, 600“E” St. N.W., Room 6002, Washington, DC 20579 (phone 202-616-6975). The Commission deals with “expropriations” — property owned byU.S. citizens and corporations that was seized by a foreign government. Italso administers a limited program of compensation for Albanian/Americancitizens who lost property to the Communists and one for American citizenswho were in Nazi concentration camps.

Even Without the Iron Curtain, Obstacles RemainTo understand the challenges to recovering property in foreign countries,consider the status of the national laws affecting the return of property seizedby the Nazis or Communist regimes. The following information, which maychange as nations review and revise their laws, is based on a New YorkTimes report (May 26, 1996) and other sources.

Albania: Albanian and Albanian/American citizens who had propertyconfiscated by the Communists can get some property back or receivevouchers for compensation.

Bulgaria: A 1992 decree mandates property be returned. No citizenshipor residency requirements, but foreigners must sell property after three years.

Czech Republic: Only a citizen can file property claims. Unclear if U.S.citizens may make dual-citizenship claims.

Poland: No national law yet but some courts have recognized propertyclaims and granted restitution.

Romania: Claims for seized property may be made. Claimants mustbecome Romanian citizens by January. Some previously approved claimsmay be reconsidered.

differences,” he said, “we can’t doeverything for everybody, but wecan usually do something to helpsome people.”

Overseas Citizen Services can helplocate legal assistance (it maintains alist of attorneys who specialize intaking on these cases for Americans)and can put people in touch with theappropriate embassy staff (either ourembassy in the overseas country orthe foreign embassy in the U.S.).

Many lost property cases date backto Europe in the 1930s, ‘40s, and‘50s — most notably Holocaustvictims whose property wasconfiscated by the Nazis andemigres from Central and EasternEurope whose property was takenby the former Communistgovernments of the region. Theseand similar situations continue to filltoday’s headlines. For example,there has been renewed activity inrecent months to search for andreturn Swiss bank accountsbelonging to Holocaust victims ortheir heirs. Also, a new law calledthe Helms-Burton Act eventually couldallow U.S. citizens to bring lawsuitsfor property confiscated by Cuba.

“Dealing with overseas property andaccounts, especially after manyyears, can be very confusing andoften frustrating,” said DiPlacido. “Itprobably seems to some people asthough there is a different set of rulesfor every country, and often that’s notfar from the truth. Sometimes peoplejust don’t know where to start.”

If you’re in that category, check outour listing of the U.S. governmentoffices in the box on the right.

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Hidden Assets

8 FDIC

Small Business

If you are thinking of starting yourown business — or if you alreadyown a small business — finding theright mix of financial services foryour company is a top priority.Fortunately, in today’s financialmarketplace, you have more choices than ever when it comes tofinancing your business, gettingfinancial advice and managing your accounts.

FDIC Consumer News has gatheredbasic information on some of theservices available to you. We’vealso included some tips. Whetheryou own a business, or are thinkingabout starting one, we hope thisarticle will help.

1. Watch your deposit accounts.If your business is a soleproprietorship — a company ownedby one person — don’t make themistake of assuming that yourbusiness deposits at a bank or thriftinstitution are insured separately fromyour personal accounts. UnderFDIC deposit insurance rules, soleproprietorship accounts are addedto any other business or personalaccounts (excluding IndividualRetirement Accounts) the owner mayhave in his or her name at the sameinstitution, and the total is insured to$100,000.

Also, if your company has separateaccounts for different purposes, suchas a general business account, apayroll account and a tax account,don’t make the mistake of thinking

Big Help for Small BusinessToday’s growing financial marketplace gives small business owners an edge in getting the financing —

and other products and services — they need

that each account is separatelyinsured. All accounts owned by thesame business (except for funds putinto employee retirement accounts)are considered accounts of the sameentity and are insured under thesame $100,000 ceiling.

If your accounts do exceed the$100,000 ceiling, you may want toconsider such options as openingdifferent types of accounts orrestructuring existing accounts toensure full coverage under the rules.It’s usually best to check with yourinstitution to see what adjustmentscan be made.

If you are unsure about your depositinsurance coverage, contact theFDIC’s Division of Compliance andConsumer Affairs. (See the box onPage 11 for the address and phone number.)

2. Prepare carefully before applyingfor a loan. If you’re starting a newbusiness, remember that most lendersplace you in the high-risk category.Because about half of new smallbusinesses dissolve within the firstfour years, often for voluntaryreasons, any financial institution orlender will look very closely beforeapproving a loan. The burden is onyou to make your case convincingly,thoroughly, and in language thatlenders understand.

Approaching your banker or otherlending official for a loan is alwayseasier if you have alreadyestablished a solid credit record.

If you have a start-up, spend timeeducating that person about yourbusiness. If you’ve got an ongoingenterprise, invite the lender to yourcompany for a tour. Give thatperson a chance to becomeinterested in your business and your prospects.

Know your bottom line. Know howmuch you need to finance, why youneed it, and for how long. Knowwhat sources of income you will useto repay the loan. Also, beprepared to show that you can putsome of your own capital into yourbusiness as equity.

Have a good idea of the type ofloan you need. Short-term loansare generally repaid in one to threeyears and include contractor andvendor lines of credit and businessvehicle loans. Intermediate-termfinancing is typically paid back infive to seven years and can includeloans for machinery and equipment,furniture and fixtures, andrenovations and business expansion.Long-term financing can havematurities of up to 20 years or more and can include commercialmortgages for buildings, majorequipment purchases, and site improvements.

Prepare a business plan thatincludes an overview of yourcompany, an explanation of itsproducts or services, an explanationof your operations, a marketing plan and the reasons your company or concept differs from the

9FDIC

Small Business

competition. If you’ve already beenin business for a while, attachaccurate financial statements,including a balance sheet, anincome statement and a cash-flowstatement. Make sure your businessplan is professional, detailed,accurate and attractive.

Highlight your managerialexperience. Lenders want to bereassured that you don’t just have agreat idea, but know how toexecute it. If you don’t havemanagement experience, considerfinding a partner or employee who does.

Make sure your personal financesare in good order. Many banks arepaying more attention to anapplicant’s personal finances as anindicator of whether a small businessloan will be repaid promptly, soyour history of managing yourpersonal finances is important. Beready to hand over copies of yourincome tax returns and othersupporting documents.

3. Consider an SBA loanguarantee. One of the best optionsto help secure a loan is to obtain aloan guarantee from the SmallBusiness Administration (SBA). Ifyou’re unable to get a loan througha bank or another financialinstitution, ask your lender aboutSBA’s 7(a) Loan Guaranty Program.This program guarantees largeportions of loans to small businessesthat are not able to find financingon reasonable terms. Your bankerrequests the loan guarantee from theSBA and, if it is granted, approvesand services your loan. The SBAcan guarantee 75 percent of theloan amount up to $750,000. For

loans of $100,000 or less, theguarantee is 80 percent.

The SBA also offers a wide range ofother assistance, including the LowDocumentation Program. Manyconsumers and banks like thisprogram because it cuts paperwork(the application is only one page)and it’s quick (the SBA typicallyapproves applications within threedays). To contact the SBA, see thebox on Page 11.

4. Consider alternatives. Manyother potential sources of lendingare available to entrepreneurs. Here are just a few:

• Microenterprise lenders. If you’relooking for a short-term loan from$100 to $10,000, amicroenterprise lender may be theway to go. Microenterpriseprograms — which provide loans,technical assistance and advice tosmall firms — are growing in theU.S., with more than 200 suchprograms in the country now. Mostmicrolenders are nonprofitorganizations that act asintermediaries between banks andsmall business borrowers. TheSBA’s new 7(m) MicroLoan program also offers short-term loans from under $100 to $25,000 for inventory, supplies and working capital.

• Venture capital firms. If you are astart-up company seeking a fairlylarge amount of capital —$200,000 or more — and you’rewilling to allow part ownership inyour company, a venture capitalistmay be a good choice for you.Venture capitalists are individualinvestors, partnerships and

investment companies that invest infast-growing small businesses andstart-ups with strong growth potential.They provide funding to businessesin exchange for part ownership.One way to shop around for aventure capital firm is to participatein a venture fair, where venturecapitalists and other investors meetto learn about new companies.Also, check with the SBA for a list ofSBA-licensed and funded smallbusiness investment companies.

• Business incubators. Businessincubators are organizationssponsored by several sources,including universities and localgovernments, that often lend moneyto start-up businesses and sometimesprovide them with physical facilitiesand support services to launch their operations.

• Loan pools. In many parts of thecountry, banks are joining forces tocreate loan pools for smallbusinesses. Banks benefit from thisapproach because it reduces risk.Ask your local bank or Chamber ofCommerce about loan pools in your area.

• State and local governments.Most state and local governmentshave small business investmentprograms. Contact your state’sdepartment of economicdevelopment or local Chamber ofCommerce for information.

• Credit cards. Many start-upshave financed their companies usingcredit cards. While credit cardsmay be a popular financing choice,you should be aware of theliabilities. Interest rates on credit

(Continued on next page)

10 FDIC

Small Business

cards are usually much higher thanon business loans, and keepingtrack of the payments, especially ifyou use more than one credit card,requires careful monitoring.

• Vendor credit. Don’t forget yoursuppliers, manufacturers anddistributors when you need to raisecash. They may be willing to offeryou attractive interest rates or flexiblerepayment terms.

5. Recognize that there are morebank services available than justdeposits and loans. Increasingly,banks and other financial institutionsare providing innovative servicesthat benefit small businesses, such aspersonal computer-based cashmanagement, which allows you togain on-line access to your accountbalances, examine transactions,transfer funds between accounts andmake loan payments. Some creditcard issuers also have begun to offerbusiness credit cards that can beused to make purchases, trackemployee spending, and helpmanage cash flow.

Another product that is growing inpopularity is the “sweep account.”Offered by many banks andbrokerage firms, sweep accounts arecorporate checking accounts that“sweep” excess funds each day intoan interest-bearing account, such asa money market mutual fundaccount, thereby helping to ensurethat your money is being put togood use.

Intent on gaining a larger share ofthe small business market, manyfinancial institutions are also offeringmore “people” services to customers,such as providing financial advice,

helping you expand your business,and teaching you how to gainelectronic access to your accounts.Just ask your institution if it canprovide you with these services.

6. Be selective in choosing afinancial institution. Once you’vedetermined what you really needfrom a bank or other financialinstitution, shop carefully. Ask if theinstitution has a track record ofcatering to small businesses andhow many small firms currently makeup its customer list. Find out if it hasa special unit dedicated exclusivelyto small business needs. Askyourself if the representative whomeets with you seems genuinelyinterested in your business and themarket you serve. Ask other smallbusiness owners about institutionsthey recommend. You may alsowant to order a copy of “SmallBusiness Lending in the U.S.,” anSBA publication that lists the toplenders in each state.

7. Discover programs for minoritiesand women. If you are a minorityor woman small business owner, theSBA allows you to prequalify for anSBA loan guaranty before youapproach a lender. These programsfocus on your character, credit,experience and reliability rather thanyour collateral when reviewing yourapplication. Because they are pilotprograms offered in limitedlocations, check with your local SBAoffice for details on programs inyour area.

The Minority Business DevelopmentAgency (MBDA) within the U.S.Department of Commercecoordinates federal and privateprograms and resources to promote

and encourage minority businessownership. The MBDA does notprovide direct loans or legalservices, but it does identify publicand private sources of funding forminority-owned firms and assists withloan applications.

Many states also sponsor programsdesigned to assist minority andwomen-owned businesses. Checkwith your state’s economicdevelopment office for informationabout what’s available in your area.

Also, remember that the EqualCredit Opportunity Act (ECOA)prohibits creditors fromdiscriminating on the basis of race,color, religion, national origin, sex,marital status, age, the fact that allor part of the applicant’s income isderived from public assistance, orthe fact that an applicant has ingood faith exercised any right under the Consumer CreditProtection Act (such as delaying acredit card payment until a billingdispute is resolved).

8. Avoid scams. If you want tostart your own business, beware ofbogus “business opportunities”made by fraudulent companies.Often these offers appear in theclassified advertisement sections ofnewspapers, with appeals such as,“be your own boss,” or “make hugeprofits.” Many would-beentrepreneurs have lost theirretirement accounts, life savings andother assets by responding to thesefraudulent offers.

Also, watch out for phony debtcollectors, telemarketing scams, and“fax scams” in which phonyinvestors send you a fax offering to

11FDIC

Business “Partners” for Small Firms

To find out more about the various programs we’ve mentioned, check outthese organizations.

The Federal Deposit Insurance Corporation. For information on theEqual Credit Opportunity Act, special programs for minorities and smallbusinesses, and deposit insurance, contact the FDIC’s Division ofCompliance and Consumer Affairs, 550 17th Street, NW, Washington,DC 20429. Phone: (800) 934-3342 or (202) 942-3100. Fax: (202) 942-3427 or (202) 942-3098. Internet: consumer@fdic.gov.

The Small Business Administration. To learn more about SBA programsor to get one of its helpful brochures, contact your local SBA office or theSBA Answer Desk at (800) 8-ASK-SBA. The SBA’s Web site on theInternet can be reached at http://www.sba.gov/.

The Federal Reserve Bank of New York. For a copy of “The CreditProcess: A Guide for Small Business Owners,” contact the Federal ReserveBank of New York’s Public Information Department, 33 Liberty Street, New York, New York 10045. Phone: (212) 720-6134.

National Business Incubation Association. To obtain information on 550business incubators in the U.S., contact this association at 20 E. CircleDrive, Suite 190, Athens, Ohio 45701, or call (614) 593-4331.

Association for Enterprise Opportunities. For information onmicrolenders in your area, write to this association at 70 E. Lake Street,Suite 620, Chicago, Illinois 60601-5907, or call (312) 357-0177.

National Venture Capital Association. If you want to find out moreabout venture capital firms in your area, contact this association at 1655North Ft. Myer Drive, Suite 700, Arlington, Virginia 22209, or phone (703) 351-5269.

Minority Business Development Agency. This newly formed agencywithin the Department of Commerce can be reached at 14th andConstitution Avenues, N.W., Room 6707, Washington, DC 20230, orcall (202) 482-4547.

Small Business

transfer huge sums of money intoyour bank account if you’ll givethem your account number. Smallbusiness owners and aspiringentrepreneurs are prime targets for many con artists — so be onyour guard.

Let’s face it, starting your ownbusiness — or keeping it profitable — is never easy. Manysmall businesses fail, but many alsosurvive those difficult first years tobecome thriving enterprises. Whileit’s impossible to predict whichbusinesses will succeed and whichwill fail, it’s a pretty safe bet thatyour business will do better withsound financial management andthe wise use of financial services.

That’s why it’s so important to doresearch and make carefulselections. When making thosedecisions, don’t let yourself getboxed in. As a small businessowner, you have any number ofresources to turn to — and lots ofinformation at your disposal. If you

P lease Write!

Is there an issue you’d likeaddressed or a question you’d like answered in FDIC Consumer News?Please send your thoughts andsuggestions to:

Jay Rosenstein, Editor, FDIC Officeof Corporate Communications,550 17th Street, NW,Washington, DC 20429 Fax: 202-898-3725 Internet: editorconsnews@fdic.gov

want to learn more about what’savailable, spend a little time at yourlocal library. Also contact some ofthe organizations listed in the boxbelow. Never assume that you haveto go it alone.

We hope this article provided youwith a start. Who knows, yearsfrom now, your Ma and Paoperation may become M&P GlobalEnterprises, Inc.!

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12 FDIC

receiving payment before a serviceis provided, and gives consumersthree days to cancel a contract witha credit repair firm. (As wereported in the spring 1996 issue ofFDIC Consumer News, there aremany respected organizations thatcounsel debtors at little or no cost.For a free copy of our story abouthow to climb safely out of debt,contact the FDIC Public InformationCenter at the address on Page 3.)

■ Mortgage forms. Existing lawsrequire lenders, attorneys and othersinvolved with a mortgage loan toprovide consumers with disclosuresabout the nature and costs of theservices to be provided. The idea isto help people be fully informedwhen they shop for loans andrelated services, and to understandtheir rights to be treated fairly. But acommon complaint from consumersis that existing disclosures are toocomplicated and confusing. Thenew law requires the FederalReserve Board and the U.S.Department of Housing and UrbanDevelopment (HUD) to work togetherto simplify these disclosures.

■ Phony financial instruments.Fake checks, money orders andother documents cheat financialinstitutions and consumers out of anestimated $10 million worldwideevery day. Unfortunately, lawenforcement authorities in the U.S.have been unable to prosecutemany of the people behind thesescams. For example, under existing

Consumers will have moreassurances about the accuracy andprivacy of their personal credithistories under a law enactedSeptember 30. Here’s a quickrundown of these and other keyprovisions of the Economic Growthand Regulatory Paperwork ReductionAct of 1996, which will becomeeffective at various dates:

■ Credit reports. These files,compiled by companies calledcredit bureaus, are used by lenders,employers and others who have alegitimate need to know aboutsomeone’s credit history andreliability. The typical credit reportdescribes how quickly a personpays back money borrowed oncredit cards and other loans, andwhether that individual filed forbankruptcy within the last 10 years.Unfortunately, mistakes in creditreports can result in loanapplications being rejected, jobopportunities being lost, and otherproblems. While consumers alreadyhave the right to review their creditreports and request corrections, theprocess can be time-consuming,frustrating and costly.

To address these concerns, the lawamends the Fair Credit ReportingAct of 1970 by setting newprocedures and timetables for creditbureaus to investigate consumercomplaints and correct mistakes. Italso puts limits on how much, ifanything, a credit bureau cancharge for copies of reports or other

documents. For example, the mostyou can be charged for a copy ofyour report is $8 (a fee to beadjusted each year based oninflation). As under the old law,you’re entitled to a free copy ifyou’ve been turned down for a loanbecause of information in your creditreport, but now you’ll have 60 daysto ask for it, not 30 days.

Also, privacy protections wereadded to prevent the unauthorizedrelease of information. You canhave your name and addressexcluded from lists that creditbureaus sell to banks and insurancecompanies for marketing purposes,such as offers of credit cards. Credit bureaus and similar firms alsocan’t release your records to anemployer without your writtenauthorization, and they can’tdisclose medical information toinsurers and other people withoutyour consent.

■ Credit repair scams. Consumerswho have trouble getting loansbecause of problems they’ve had inthe past can be easy targets forunscrupulous credit repair outfits thatpromise easy credit or the chance toerase a bad credit history. Oftenthese credit repair “clinics” andcredit “doctors” charge big, up-frontfees for services they can’t or don’tdeliver, or that consumers canperform on their own.

The new law includes penalties forfalse or misleading practices,prohibits credit repair firms from

New Law to Help Consumers Preserve, Protect and Defend their Credit Records

Wide range of other consumer issues also addressed in new statute

13FDIC

anti-counterfeiting laws, the FBI andother authorities couldn’t arrestsomeone for passing a fictitiousfinancial instrument that wasproduced from scratch on apersonal computer — because thedocument technically was not acopy of anything. (The governmentinstead had to catch these conartists for mail or wire fraud.) Thenew law closes the existingloopholes by prohibiting the

other leasing companies areexpected to begin complyingsooner. For information, contact theFederal Reserve (see Page 15) orcheck out the Fed’s Internet site(http://www.bog.frb.fed.us).

Electronic Banking UpdateThe FDIC has issued a legal opinionconcluding that, in most cases, thefunds underlying most “stored-valuecards” are not deposits andtherefore are not protected bydeposit insurance. (These arecards, currently only issued by a fewinstitutions, that look like credit ordebit cards but are bought and usedlike cash to pay for meals and othersmall purchases.) However, theFDIC also outlined the circumstancesunder which banking institutionscould design stored-value cards thatwould be insured. The FDIC alsohas asked the public for commentson developments in electronicbanking, including the need for newconsumer protections in areas suchas stored-value cards and bankingover the Internet.

Free PublicationsThe U.S. Office of Consumer Affairshas released its 1997 “Consumer’sResource Handbook,” anoutstanding collection of tips andplaces to contact if you have aquestion or complaint. Call 1-800-664-4435 or write to the USOCAat 750 17th Street, NW, 6th Floor,Washington, DC 20006...TheFDIC has updated two brochures onthe Equal Credit Opportunity Act —one for senior citizens, the other forwomen. Contact the FDIC’s Divisionof Compliance and ConsumerAffairs (see Page 15)...The FederalTrade Commission has published“Wealth-Building Scams,” abrochure about frauds promoting“easy money” from investments andbusiness opportunities. The FTCalso has produced two newbrochures about dealing with creditproblems. Contact the FTC, PublicReference Branch, Washington, DC20580 (Phone 202-326-2222).You also can access the FTC’spublications on the Internet(http://www.ftc.gov).

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Auto LeasesConsumers considering leasing acar instead of buying one soon willhave more meaningful informationon which to base their decision,thanks to the first major overhaul offederal disclosure rules in 20 years.The Federal Reserve Board inSeptember issued new rules toaddress concerns that consumersoften are confused or misled by thecontracts and disclosures currentlyprovided by leasing companies. Forexample, many consumers aren’taware of other charges on top ofmonthly payments that can makeleasing more expensive than buying.Under the new rules, consumers mustbe given new details about the totalcost of a lease, how scheduledpayments were calculated (includingthe “value” of the car at the startand end of the lease), penalties forterminating the lease early, andother facts that can help consumerscomparison-shop and decidewhether to buy or lease. The newrules don’t go into effect untilOctober 1, 1997, but many autodealers, financial institutions and

News Briefs

production, sale, transportation orpossession of fake financialinstruments.

■ Deposit insurance. While thisaspect of the new law may notaffect your pocketbook, FDICChairman Ricki Helfer said it“assures Americans that theirdeposits are safe.” At issue was theSavings Association Insurance Fund(SAIF), a deposit insurance fund

primarily for savings and loanassociations that has been in needof a significant injection of money tobe fully capitalized. The new lawimposes a special one-time fee onthe thrift industry to immediatelybring the fund up to the desiredlevel, and it requires banks to helppay the costs of bonds that wereissued in the 1980s as part of thethrift industry cleanup.

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14 FDIC

How Much Do You Know Before You Invest?The FDIC wants to be sure you’re told investment products

at banks and thrifts aren’t insuredAny consumer considering aninvestment needs to know as muchas possible before putting downmoney. That’s why the FDIC didsome research to find out whatconsumers may or may not be toldwhen they go into banks andsavings associations to buy suchthings as mutual funds and annuities.The industry refers to these as“nondeposit investment products,”because they are not depositaccounts protected against loss bythe FDIC. These products also aresubject to investment risk, includingpossible loss of principal.

We hired a firm that used trained“mystery shoppers” — researchersposing as consumers — who made7,800 “contacts” in person and byphone at almost 1,200 FDIC-insuredinstitutions.

Although the FDIC and otherregulators in 1994 required certaindisclosures about nondepositinvestments, our survey showed that,while most banks and thrifts weremaking most disclosures most of the time, there was a need for improvement.

“Twenty-eight percent of thecustomers in our survey were nottold that mutual funds lack depositinsurance. In 30 percent of thecases, institutions failed to disclosethat the products are not obligationsof the bank,” FDIC Chairman RickiHelfer said in announcing the survey results. “Those results need tobe improved.”

We are working with the bank andthrift industries to ensure thatcustomers are aware of the riskswhen purchasing stocks, bonds,mutual funds, annuities and othernondeposit investment products.TheFDIC also is taking the followingsteps to improve disclosure andsales practices:

■ The FDIC is planning to providetraining for bank employees —ranging from investmentrepresentatives to tellers — focusingon the required disclosures.

■ The FDIC and other federalbanking agencies are reviewing theexisting requirements to clarify whendisclosures are required.

■ The FDIC is working with otherregulators to require that all bankemployees selling nondepositinvestment products meet thesecurities industry’s basicqualifications, testing, reporting andcontinuing education requirements.

■ The FDIC is increasing its trainingfor bank examiners who checkinstitutions for compliance with thedisclosure requirements.

■ The FDIC will continue tocoordinate with other banking andsecurities regulators to insure that the rules and guidance governingsales of nondeposit investmentproducts at banks and thrifts areapplied consistently.

While these efforts are intended toinsure that bank employees andbank examiners are doing their jobs,

the FDIC is taking steps to helpcustomers know what they can do if they have a complaint involving an investment product.These steps include:

■ Revisions to our consumerbrochure on investment products toprovide more information on thedisclosures that banks and thriftsshould make, as well as informationon how to submit a complaint to theFDIC or another regulator.

■ Customers can call the FDIC’stoll–free consumer hotline listed onPage 15.

■ Complaints that are registered withthe FDIC will be tracked to seewhether the customer’s problemshave been resolved.

■ Even if the FDIC is not involved,we will refer complaints aboutpersons selling nondeposit investmentproducts to the appropriate self-regulatory organization, and we’llrefer complaints about a financialinstitution to the proper federalregulator. Complaints about annuities will be forwarded to stateinsurance commissioners.

The FDIC, as a federal depositinsurer, has a special interest inmaking sure that consumers do notconfuse FDIC-insured deposits withnondeposit investment products beingsold at banks and savingsassociations. Our goal is to insurethat banks and thrifts provide theircustomers with the information theyneed before they invest.

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15FDIC

Office of the Comptroller of the CurrencyCharters and supervisesnational banks. (The word“National” appears in thename of a national bank, orthe initials “N. A.” follow its name.)

Customer Assistance UnitMail Stop 3–9Washington, DC 20219 Phone 800-613-6743Internet:consumer.complaint@occ.treas.gov

Federal Reserve SystemSupervises state-charteredbanks that are members ofthe Federal Reserve System.

Division of Consumer and Community Affairs 20th St. and Constitution Avenue, NW Washington, DC 20551Phone 202-452-3693

Office of Thrift SupervisionSupervises federally andstate-chartered savingsassociations plus federallychartered savings banks.(The names generallyidentify them as savings andloan associations, savingsassociations or savingsbanks. Federally charteredsavings associations havethe word “Federal” or theinitials “FSB” or “FA” in their names.)

Consumer Affairs Office1700 G Street, NWWashington, DC 20552Phone 800-842-6929 or202-906-6237

National Credit UnionAdministrationCharters and supervisesfederal credit unions. Insuresdeposits at federal creditunions and many state credit unions.

Office of Public and Congressional Affairs1775 Duke StreetAlexandria, VA 22314Phone 703-518-6330Internet:http://www.ncua.gov

Some banking matters mayinvolve state laws. Forassistance, contact theappropriate state financialinstitution regulatory agencyor state Attorney Generallisted in your telephone bookand other directories.

Federal Deposit InsuranceCorporationSupervises state-chartered banks thatare not members of the FederalReserve System. Insures deposits atbanks and savings associations.

For information about consumerprotections, including depositinsurance:

FDIC Division of Compliance and Consumer Affairs550 17th Street, NWWashington, DC 20429Phone 800-934-3342 or202-942-3100 Internet: consumer@fdic.govFax:202-942-3427 or202-942-3098

For questions, concerns orcomplaints about the Federal DepositInsurance Corporation:

FDIC Office of the Ombudsman550 17th Street, NWWashington, DC 20429Phone 800-250-9286 or 202-942-3500Internet: ombudsman@fdic.govFax: 202-942-3040 or202-942-3041

Federal Deposit Insurance Corporation

For questions about consumer or civil rights laws,or complaints involving aspecific institution: First attempt toresolve the matter with the institution.If you still need assistance, write tothe institution’s primary regulatorlisted on this page. Although theFDIC insures nearly all banks andsavings associations in the UnitedStates, the FDIC may not be theprimary regulator of a particularinstitution. The regulators enforceconsumer protection and civil rightslaws, including prohibitions againstdiscriminatory lending practices;

initiatives to prevent unfair ordeceptive practices in deposit–takingor lending; and rules that encourageinstitutions to meet local credit needs.

For questions about deposit insurance coverage:The FDIC offers protection toconsumers by insuring deposits up to$100,000 at federally insuredbanks and savings associations. For more information, contact the FDIC’s Division of Compliance andConsumer Affairs as listed below.The National Credit UnionAdministration insures deposits up to $100,000 at federally insured credit unions and can be contacted at the address below.

Other Key Regulators

For More Help

Federal Deposit Insurance CorporationWashington, DC 20429-9990

OFFICIAL BUSINESSPenalty for Private Use, $300

We Want You toOpen Up...About Safe

Deposit Boxes!

Maybe it’s their location inside thevault...the tight security...or thesecret contents. For

whatever reason, there’s anuncommon mystery to the commonsafe deposit box. That’s why in anupcoming issue of FDIC ConsumerNews we’re going to take some of

the mystery outof safe depositboxes —including what

you should knowabout how they’re regulated

and protected. But we also want tohear from you!

Do you havequestions,suggestionsor concernsabout safe

deposit boxes?Do you have horror

stories or tips you’d liketo pass along?

How about a funny story orother interesting anecdote?

Please send them to: Jay Rosenstein, Editor, FDIC Consumer News,550 17th Street, NW, Washington,DC 20429. Fax: 202-898-3725. Internet: editorconsnews@fdic.gov. The deadline is December 20.Please also include your name,address and phone number. No names will appear in printwithout your permission.

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Certif icate of Deposit $$

16 FDIC

FDIC