Long-Distance
Banking:
A Guide to Your Rights and Risks
Considering a far-away
or Internet institution?
First know the basics of remote banking
What do you do when
you get ads in the mail about great deals from banks and savings
institutions you've never heard of and with offices you'd never
get to, including some that only do business on the Web? Do you
turn away? Or do you wonder if you could do better on everything
from savings accounts to mortgages and auto loans-by banking
long-distance?
The FDIC recently addressed
these questions and concerns.
What are the potential advantages of
banking long-distance?
If
you can get the services and interest rates you're looking for,
and if you're comfortable conducting financial transactions by
phone, mail or the Internet, long-distance banking can be a good
option. For example, banks that rely heavily on the Internet,
toll-free call centers and other low-cost ways to serve customers
nationwide may be able to pay higher returns on deposits or charge
lower rates on loans than institutions with more extensive and
expensive branch office networks.
Michael Benardo, manager
of the FDIC's electronic banking section, says that banking over
the Web, in particular, offers convenience. "If you can
do your banking from home, 24 hours a day, seven days a week,
that's much more convenient than driving or walking to the bank
during limited office hours," he says.
Online banking also
allows you to monitor your account-to see which checks have cleared
and which deposits have been credited-without having to wait
for a statement in the mail. Of course, institutions in your
local community probably offer banking services online or by
phone or mail, but some people may prefer to shop nationwide
for the best deals.
What are the possible disadvantages?
The
biggest disadvantage may be that you can't sit down with a bank
employee face-to-face if you want to, which can be especially
helpful if you need to solve problems. You're likely to have
to rely on the mail to make deposits and conduct certain other
business. You'll also have to use an automated teller machine
to get cash, and those transactions usually involve fees. Also,
because some of these institutions may turn out to be fraudulent,
the consumer must bear additional responsibility for checking
out the legitimacy of a distant institution before providing
confidential information or sending money.
This isn't to say that
far-away or unfamiliar banks should be avoided-only that risks
exist and precautions should be taken. "As with most business
transactions, its buyer beware," says Janet Kincaid, a senior
consumer affairs officer with the FDIC. Jeff Kopchik, a senior
policy analyst with the FDIC's electronic banking section, agrees.
"Customers have the primary responsibility to take reasonable
steps to make sure that an institution they are considering doing
business with is legitimate and FDIC-insured, and that their
deposits are within the FDIC insurance limits," he says.
"The location of the bank doesn't change that."
How can I be sure a remote institution
or an Internet bank is legitimate?
First,
learn everything you can about the bank. Consider starting with
information posted on the bank's Web site, usually found in an
"About Us" section or something similar. You may find
a brief history of the bank, the address of its headquarters
and branches, telephone numbers, and how to contact the bank
for customer assistance. "Not providing these details could
be a sign you should be extra cautious before doing business
with that bank," adds Kopchik. "You should also be
suspicious if the Web site looks sloppy or the Internet address
appears unusually long," both of which he says are possible
signs of "a temporary Web site set up by a crook."
If you're considering
making a deposit, look for the official FDIC logo or the words
"Member FDIC" or "FDIC-Insured" on the institution's
Web site or advertisement, although some fraud artists have been
known to use the FDIC name or logo illegally. When in doubt,
you can confirm that a banking institution is insured by contacting
the FDIC at 877-275-3342 or by searching online "Institution
Directory," a database of insured institutions at www3.fdic.gov/idasp.
Be aware that some banks and thrifts operate affiliates and Internet
sites under a different "trade" name than the company's
"legal" name, and the FDIC database only uses the legal
name. The FDIC and other federal regulators, though, have advised
banks to clearly identify their legal names in advertisements
and on their Internet sites.
When it comes to getting
a loan, purchasing insurance or investing in any other financial
product, steer clear of any company that has not been licensed
to do that kind of business by a federal or state government
agency. If you're not sure how to find out if a company is legally
licensed, get guidance from your state government's consumer
protection office or Attorney General's office, as listed in
your phone book.
A fraudulent Internet
site may attempt to lure innocent victims with unusually attractive
offers, so be very suspicious of deals that are significantly
better than what other banks are offering. An example would be
an offer of 15 or 20 percent interest on a deposit when local
banks and other Internet banks are paying five percent. In addition,
watch out for Web sites that deliberately use a name or Internet
address similar to, but not the same as, that of a real financial
institution. That's a deceptive technique used to trick consumers
into thinking they're dealing with a reputable bank. For more
guidance about Internet banks, read the FDIC brochure "Tips
for Safe Banking Over the Internet," available online at
www.fdic.gov/bank/individual/online/safe.html or call toll-free
877-275-3342.
If I bank by telephone or the Internet,
are my legal protections the same as when I bank in person?
Yes,
you're covered by the same consumer protections as other banking
customers The Equal Credit Opportunity Act, the Truth in Lending
Act, the Truth in Savings Act, the Federal Deposit Insurance
Act (which provides for FDIC insurance), and so on. In addition,
you're protected by the Electronic Fund Transfer Act, which governs
consumer rights involving errors in the handling of electronic
deposits, payments or withdrawals, and limits on consumer liability
for unauthorized transfers.
How are deposits at Internet banks insured?
The
FDIC's coverage depends on whether the Internet bank has its
own charter or if it's a division of a traditional brick-and-mortar
bank. An Internet bank that has its own charter is covered just
like any other FDIC-insured institution. Even if the Internet
bank is a subsidiary or affiliate of another insured institution,
as long as the Internet bank has its own charter (as indicted
by its own FDIC certificate number) it is separately insured.
That means that if you have deposits at both of those banks,
your funds at the two institutions would be insured separately,
even though the two institutions are affiliated.
But let's say the Internet
bank is a division of a parent bank, not a separately chartered
subsidiary. And let's suppose you have deposits at both banksand
the parent bank fails. Because they are both the same institution
under the same charter, your deposits at the Internet bank would
be added to those at the parent bank, and any funds over the
insurance limit may not be fully protected. Here, the funds would
be combined for insurance purposes even if the names of the
two banks are different.
Establishing if
an institution has its own charter can be complicated, so contact
the FDIC if you have questions.
How can I be confident that my banking
transactions over the Internet are secure?
First,
make sure the bank's Web site describes its security procedures.
Most banks use "encryption" to scramble account numbers
and other private information to prevent unauthorized access.
Take your own precautions by protecting your passwords and personal
identification numbers (PINs), including not using birthdays
or other numbers or words that may be easy for other people to
guess.
Also take steps to
safeguard your banking information and other personal data. For
example, never send a bank or anyone else an e-mail with personal
information, such as your bank account, credit card or Social
Security number, unless the e-mail is encrypted. For more information
about security procedures or to discuss concerns about your online
accounts, call the bank directly.
How can I best protect myself from errors
or other disputes when banking long-distance?
As
with any banking relationship, keep good records. That means,
for example, deposit receipts, periodic statements, account disclosures,
explanations of your rights and responsibilities, and copies
of any contracts you agree to with the bank. If a dispute or
a discrepancy arises, those documents may help support your claim.
Also, monitor transactions and account balances regularly. If
you find a discrepancy, promptly notify the bank.
Can banking regulators help me solve
a problem with a faraway or Internet bank?
If
you can't solve the problem directly with the bank, the institution's
federal regulator the Federal Reserve System, the FDIC, the Office
of the Comptroller of the Currency or the Office of Thrift Supervision
may be able to assist you. Each federal regulator has a responsibility
to investigate and respond to consumer complaints. The regulators,
however, may not be able to assist you in a contractual dispute
or if a matter is in litigation. If you're not sure which federal
agency supervises a particular institution, ask any federal agency
or go to the Institution Directory on the FDIC's Web site. If
the ban is a state-chartered institution, the appropriate state
regulator also may be able to help you resolve a problem or complaint.
I've heard that deposit brokers can
sell CDs (certificates of deposit) from banks across the country
at higher interest rates than I can get from my local bank. Is
there a catch?
Maybe,
maybe not. Brokers sometimes can negotiate a higher interest
rate on a bank-issued CD because they can bring a large amount
of deposits to the bank. However, CDs sold by brokers also tend
to be complex and may carry more risks than traditional CDs sold
directly by banks. Also, some unscrupulous brokers have used
misleading tactics to sell CDs with 20- or 30-year maturities
to elderly people who thought they were purchasing CDs for only
one year. For more information, see the Fall 2000 issue of FDIC
Consumer News available online at www.fic.gov/consumers/consumer/news/cnfall00.
Is it safe to deposit money in a foreign
bank that advertises in the U.S.?
It
depends. There are foreign banks that have FDIC-insured branches
in the United States. Funds deposited at those branches would
be covered by the insurance rules up to the $100,000 insurance
limit, the same as with an American bank that's FDIC-insured.
There also are legitimate banks chartered outside the United
States that may not be FDIC-insured, even if they have offices
in the U.S. And, as the FDIC has warned in the past, there are
unlicensed entities that use names very similar to the names
of some of the largest banks in the world and even claim to have
FDIC deposit insurance, but in reality are fraudulent. The bottom
line: Know whom you are dealing with before sending money or
providing personal information. If you have doubts, contact the
FDIC at 202-942-3098 for assistance.
