10-30-1999

BANKING: Highlights of the Banking Bill

This is a summary of the major provisions of the bill overhauling the
regulation of financial institutions. The bill is known as the
Gramm-Leach-Bliley Act of 1999:


Consumers


Consumers will eventually have what is called "one-stop
shopping," as banks, insurance companies, and brokerages combine
under one roof to sell loans, insurance policies, stocks, and mutual
funds.


Automatic teller machines will have to disclose bank surcharges before a
transaction, and customers will have the option to cancel the
transaction.


The bill includes new rules regulating the sale of insurance, such as
"anti-tying" provisions, which prevent financial institutions
from tying the sale of one product to another--for example, requiring the
purchase of an insurance policy in order to qualify for a loan. This
section is also designed to ensure that customers are not misled into
believing that insurance products are federally insured. Finally, this
portion sets out consumer grievance procedures and the guidelines under
which consumers can sue if they are misled.


Bank lending to inner-city and minority communities is ensured under
language in the banking bill that has come to be known as the Community
Reinvestment Act. And the CRA requires that bank subsidiaries of the new,
large, financial conglomerates--known as "financial services holding
companies"--have satisfactory community reinvestment ratings before
they can engage in the newly permitted financial activities; the CRA
prohibits new activities and new acquisitions if they fall out of
compliance.


Privacy Protection


Provisions in this section of the bill bar financial
institutions--including banks, savings and loans, credit unions,
securities firms, and insurance companies--from disclosing customer
account numbers or access codes to unaffiliated third parties for
telemarketing or other direct-marketing purposes.


For the first time, customers of financial institutions can "opt
out" of having their personal financial information shared with
unaffiliated third parties, except for routine transactions necessary in
the course of regular account business, such as check printing and monthly
account statement printing. A financial institution will be permitted to
enter into some joint marketing arrangements for financial products or
services, as long as the institution fully discloses such activity to its
customers and enters into a contractual agreement requiring the third
party to maintain the confidentiality of any such information.


Provisions in this section require all financial institutions to disclose
annually to all customers their policies and procedures for protecting
customers' personal information. They direct relevant federal and state
regulators to establish standards for ensuring the security and
confidentiality of consumers' personal information maintained by financial
institutions, and to protect against unauthorized access to or use of such
information.


This section accords supremacy to state laws that give consumers greater
privacy protections than the provisions contained in the federal
measure.


Provisions make it a federal crime, punishable by up to five years in
prison, to obtain or attempt to obtain private customer financial
information through fraudulent or deceptive means. Such means can include
misrepresenting the identity of the person requesting the information or
otherwise tricking an institution or customer into making unwitting
disclosures of such information.


Other Major Provisions


Under a compromise, the Treasury Department and Federal Reserve System
will share regulation of the new, large, financial conglomerates, with the
Securities and Exchange Commission overseeing subsidiaries that deal with
stocks and bonds.


Reforms in the Federal Home Loan Bank Board will provide small banks with
greater access to funds for making loans to small businesses and small
farmers.


A loophole is closed that allowed some industrial and retail companies to
own savings and loan institutions called "unitary thrifts." The
provision is aimed at preventing a company such as Wal-Mart Stores Inc.
from owning a bank.


Finally, the bill establishes a new federal "microenterprise"
program to encourage loans for very small businesses in amounts as low as
$1,000 to $1,500. It is essentially a low-income lending program designed
to encourage small enterprises.


SOURCE: House Banking Committee


Julie Kosterlitz

National Journal