CONFERENCE REPORT ON S. 900, GRAMM-LEACH-BLILEY ACT -- (Extensions of Remarks - November 05, 1999)

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SPEECH OF HON. FORTNEY PETE STARK

OF CALIFORNIA IN THE HOUSE OF REPRESENTATIVES Thursday, November 4, 1999

Mr. STARK. Madam Speaker, I rise in opposition to the conference report on S. 900, the Financial Services Modernization Act. It is badly flawed on several counts.

Rather than strengthening the Community Reinvestment Act, the conference report actually weakens this landmark regulation. For example, the bill limits CRA's oversight of 80% of the nation's banks by decreasing the frequency of exams from once every two years to once every five years for banks with at least a ``satisfactory'' rating. This ill-advised provision will undoubtedly induce small banks to game the CRA process.

In fact, the National Community Reinvestment Coalition predicts that small banks ``will relax their CRA lending in underserved communities for four years, and then hustle to make loans in the last year before a `twice in a decade' CRA exam.''

The overall impact of the CRA provisions, then, is to weaken protections against discrimination and redlining by constraining the Community Reinvestment Act in an era when financial conglomerates will become ever more powerful.

The Gramm-Leach-Bliley bill also raises troubling questions about the basic relationship between federal and state law in key areas. Supporters claim that the bill leaves state insurance law undisturbed. But in an October 13 letter, the National Association of Insurance Commissioners warned that the bill's broad, loose language will effectively permit banks to ``engage in high-risk reinsurance, claims settlement, credit insurance, third-party management services and other insurance business activities without being subject to supervision by either the States or the Federal government.''

NAIC's concerns focus on Section 104 of the conference report, which says that no state can ``prevent or restrict'' a bank's business activities. This language ``attacks the heart of State insurance regulation,'' NAIC writes, ``because every action taken by a State to protect consumers restricts the business activities of insurance providers--including banks--to some degree. The letter concludes with a grim prediction that ``virtually all State insurance regulatory actions affecting banks would thus be subject to legal challenge and possible preemption.''

Among the categories of state laws that may be preempted by S. 900, according to NAIC, are fair claims settlement laws covering consumers who purchase health, auto, homeowners, life, annuities, and other types of insurance.''

Concerns have also been raised about whether more protective state medical confidentiality laws are saved. Supporters say they are, but state insurance commissioners say that's not clear. Litigation is sure to follow, which will cost consumers plenty.

In addition, the bill's privacy rules governing sharing of information within affiliated entities are astonishingly weak. The bill allows affiliates--banks, securities firms and insurers--to freely share financial information without the consumer's consent. Affiliates have only to disclose their basic rules once a year.

The problems that this could create are severe. Financial institutions, looking at the bottom line, will use all of the information available to them before making lending decisions. Why, for example, would a bank that has a health insurance subsidiary not want to weigh medical information gleaned from financial data in considering mortgage applications? Will young families now have to worry that, having supplied medical information to apply for life or casualty insurance, that this data will affect their application for a home loan?

It is wrong and inappropriate for Congress to, on the one hand, enact legislation that explicitly allows mergers between banks, insurers and securities firms--but which on the other hand denies consumers any say in how their personal financial information can be used and disclosed.

I thought we learned this lesson 21 years ago, when Congress enacted the Right to Financial Privacy Act. That 1978 law, which I authored, put in place standards governing access and sharing of financial information for federal agencies. It stemmed from a Supreme Court decision that ruled the Fourth Amendment does not apply to banking records. As a former California banker, I had been a party in that 1974 suit, Calfornia Bankers Association v. Schultz.

And here we are today, throwing open the door for financial institutions to create huge new holding companies--without giving consumers any ability to say how their sensitive
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personal financial information can be shared. In effect, we are creating a financial privacy vacuum.

Defenders of the conference agreement say that the bill limits sharing of personal financial data with non-affiliated, third party entities. Nonsense. All that companies that don't formally affiliate have to do to escape the bill's consumer ``opt-out'' provision is enter into a joint agreement. Then, presto, they are free to manipulate personal financial data in any way they like.

Nobody likes getting annoying calls from pesky telemarketers at dinnertime. Well, once this bill passes, the telemarketing business will go through the roof. Mergers between banks, securities firms and insurers will produce data amalgamation like we've never seen before. Before long, your health insurer will be able to get information on how much money you make and what investment strategies you favor--making underwriting that much easier. Your bank will be able to easily look up how many checks you've written to your psychiatrist--and use that information to help decide whether you're an acceptable loan risk.

I urge my colleagues to vote no on the Gramm-Leach-Bliley conference report.
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