NU Online News Service, Oct. 20, 2003, 5:35 p.m. EDT – Federal banking regulators should do more to enforce the laws that prohibit commercial banks from tying the sale of traditional banking services to the sale of insurance, debt underwriting services and other services, according to an official at the U.S. General Accounting Office.

Some corporate borrowers and executives at investment banks have accused big commercial banks of using illegal tying practices to build debt underwriting operations.

In the past, insurance companies have predicted that letting banks enter the insurance market could lead to banks tying the sale of loans to sales of insurance.

So far, the Federal Reserve Board and the Office of the Comptroller of the Currency have not found clear signs of illegal tying, but the laws governing tying are complicated, and corporate borrowers have been reluctant to burn bridges with lenders by filing formal complaints, Richard Hillman, the GAO’s director of financial markets and community investment, writes in a letter summarizing the GAO’s findings.

Hillman has addressed the letter to Rep. John Dingell, D-Dearborn, Mich., the most senior Democratic member of the House Energy and Commerce Committee.

The Federal Reserve and the OCC should publish specific contact information for customers who want to complain about possible cases of tying or ask about the legality of specific transactions, Hillman writes.

The Federal Reserve also could monitor loan pricing behavior for possible signs of tying, Hillman writes.

The GAO has posted the tying report at http://www.gao.gov/new.items/d043.pdf