Copyright 1999 Boston Herald Inc.
The Boston Herald
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June 21, 1999 Monday ALL EDITIONS
SECTION: FINANCE; Pg. 028
LENGTH: 904 words
HEADLINE:
Bank reform provisions eyed - Protection of privacy sought
BYLINE: By Joe Bartolotta
BODY:
It's easy enough for a bank to pull someone's
credit history when they apply for a car loan.
But what if the bank
could also get a look at the borrower's stock portfolio, review recent credit
card purchases or learn why the borrower was denied life insurance?
Those details and more are likely stored in computers from coast to
coast, but they are mostly off limits to banks and other industries.
That could change, however. The Financial Services Act of 1999 would
remove the barriers that separate banks from brokerages and from insurers,
allowing the industries to enter into one another's business or merge. The
so-called "financial supermarkets" would have vast databases on their customers'
saving and spending habits.
The institutions could mine those databases
for their own purposes - perhaps a bank wants to notify its securities division
that someone has $ 10,000 sitting in a savings account. Or the information could
be sold to a third party, such as a telemarketer.
U.S. Rep. Edward
Markey (D-Malden) sees such activities as invasions of privacy and is pushing an
amendment to the reform law that he says would protect consumers' privacy. It
would prevent various departments within an institution from sharing information
on a customer or selling it to a third party, unless the customer says it's OK.
Critics, however, charge his amendment is poorly written legislation
that could scuttle the best attempt in years to change the federal laws that
separate banks, insurers and securities firms. "The bankers say they want to
create superbanks and my amendment is kryptonite," Markey boasts.
Privacy and consumer advocates say Markey's proposals are needed to
protect the public in the age of data mining and split-second computer
profiling.
"As we develop more of an information-based society, it's
almost impossible for a consumer to know where all the information they'd like
to keep secret resides," said Gary Klein, a consumer advocate at the National
Consumer Law Center in Boston.
Markey has the backing of the
Massachusetts Public Interest Research Group and its national affiliate, the
U.S. Public Interest Research Group.
"MassPIRG and U.S. PIRG strongly
support Mr. Markey's attempt to give consumers controls over their financial
information," said Edward Mierzwinski, consumer program director at U.S. PIRG.
"Disclosure is not privacy protection and consumers need the right to choose
when a bank shares or sells their information."
The financial services
world is not pleased with Markey, however. John Byrne, general counsel of the
American Bankers Association in Washington, said Markey's amendment prevents
financial institutions from doing what modernization allows: cross-referencing
accounts for marketing.
"Our management has been on record saying that
unless changes are made, this (amendment) would stop this bill from happening,"
Byrne said.
Bankers, insurers and securities firms are understandably
frustrated. Efforts to repeal the 1933 Glass-Steagall Act, the Depression-era
regulations that separate banks, insurers and brokerages, began before the PC
and World Wide Web were invented. After more than 20 years of work, this spring
Congress appeared close to passing the reforms.
Markey's amendment was
adopted by the House Commerce Committee, but not by the Banking Committee. The
House's Republican leadership is reviewing the two bills and says members will
vote on one by the July 4th recess. Even if the bill with Markey's amendment is
blocked, he may be able to offer the amendment to the surviving bill from the
House floor.
The Senate has already passed its version of the bill and
didn't include the strict privacy provisions. Sen. Phil Gramm (R-Texas), who
chairs the Senate Banking Committee, has said he opposes Markey's amendment.
With so many obstacles to Markey's plan ahead, at least one of its
opponents isn't worried just yet. "It's still a little like Jello - the
provisions are still moving around a little bit," said Daniel Forte, president
of the Massachusetts Bankers Association.
Like many of his colleagues,
Forte opposes Markey's amendment: "If you have to run them as separate
companies, what's the advantage of having a holding company?"
Byrne says
the amendment wasn't well-written and would actually prevent banks from doing
some of what they do now, such as having outside firms conduct audits to
determine whether the bank complies with truth-in-lending laws, for example.
Markey disputed the complaints that his amendment eliminates incentives
for financial institutions to merge. Consumers have to tell a bank they don't
want the information shared, so not everyone will opt to keep their accounts
private, he said.
Moreover, institutions that merge can still save money
by eliminating jobs, such as the 5,000 being cut as Fleet Financial Group
acquires BankBoston Corp., he said.
Markey sees the amendment as a
common-sense approach enabling financial institutions to provide more services,
while still protecting consumers.
"As adults, they should have the right
to decide whether the benefits outweigh the invasion to their privacy," Markey
said.
Photo Caption: SPEAKING HIS MIND: U.S. Rep. Edward Markey
(D-Malden) sees flaws in the Financial Services Act of 1999, which would provide
'financial supermarkets' with vast databases on their customers' saving and
spending habits. Herald photo by Mike Adaskaveg
LOAD-DATE: June 21, 1999
