Copyright 1999 P.G. Publishing Co.
Pittsburgh
Post-Gazette
November 5, 1999, Friday, SOONER EDITION
SECTION: NATIONAL, Pg. A-13
LENGTH: 1447 words
HEADLINE:
CONSUMERS GET ONE-STOP SHOPPING;
DRAWBACKS INCLUDE LOSS OF PRIVACY, GREATER
FINANCIAL RISK, HIGHER FEES.
BYLINE: ANN MCFEATTERS,
POST-GAZETTE NATIONAL BUREAU
DATELINE: WASHINGTON
BODY:
Congress, with President Clinton's
blessing, last night took a giant leap into the unknown that will have enormous
ramifications for the financial futures of most U.S. families.
Firewalls
that were erected in 1933 between banks and insurance companies, and between
banks and brokerages that sell stocks and mutual funds, now have been torn down.
This action will lead immediately to more major mergers. The idea is to lead
consumers as fast as possible to one-stop financial shopping.
But some
think the bill will be bad news for consumers because it permits the coupling of
inherently risky enterprises, doesn't protect privacy and could lead to bigger
bank fees. As it passed the "financial services modernization" legislation -
widely tagged as "landmark" and "the most significant to come out of Congress
this year" - Congress thrilled lobbyists, worried consumer groups, infuriated
privacy advocates as it finished a process lawmakers began 40 years ago.
"I felt like Sisyphus [endlessly pushing a rock up a hill]," said Sen.
Christopher Dodd, D-Conn., one of those who promoted the bill, and who believes
that rock is now atop the hill.
"This is a historic day," exulted Sen.
Charles Schumer, D-N.Y.
"This is a monumental achievement," crowed
Senate Majority Leader Trent Lott, R-Miss.
The House shepherds of the
bill, Reps. James Leach, R-Iowa, and Tom Bliley Jr., R-Va., were equally
jubilant even before their chamber voted for passage late last night.
Supporters said the measure will provide what U.S. financial
institutions need to compete globally and thrive in coming decades. But critics
said it will increase ATM fees, returned-check fees and other service charges by
reducing competition and, in effect, will make personal bank
accounts and spending information widely available - stripping
privacy from nearly all financial information.
Sen.
Richard Shelby, R-Ala., complained: "This bill lets the genie out of the bottle.
. . . I think this is a tragedy. I think it is absurd."
Noting that even
some family members don't share the amount of their salaries with each other, he
said "complete strangers" now will find it easy to obtain not only salary data
but also account balances and data on what consumers buy.
Common Cause,
the self-styled citizens lobby, charged that bankers, insurance and securities
industries won the financial services legislation mainly because they gave $
187.2 million in political contributions since 1989 to the political parties and
individual lawmakers. Common Cause said the money paid off because the Financial
Services Modernization Act of 1999 "largely reflects the priorities of the
banking, insurance and securities industries, not those of consumers."
The White House said Clinton would quickly and eagerly sign the
legislation, which will become law because of significant efforts by his former
Treasury secretary, Robert Rubin, who has now returned to New York's powerful
financial corridor.
But there are also indications that the very real
worries about the loss of privacy over financial information will promote more
hearings and possibly new regulations. Nonetheless, that would take years.
Even though the bill - worked in secret in recent days in a House-Senate
joint conference committee - sailed through both chambers yesterday, two highly
different versions caused a tug-of-war earlier this year. The House passed its
bill July 1 by a lopsided 343-86 vote. But the Senate on May 6 passed its
version by a narrow 54-44 tally, far from the 90-8 (one senator voted present)
vote for approval yesterday.
Sen. Richard Bryan, D-Nev., said that while
50 percent of U.S. consumers own some stock, and most families have an insurance
policy or two and a bank account, they don't think they are much affected by
giant financial corporations. That, he warned, will soon change.
One-stop shopping for banks, insurance and securities is just around the
corner, he said. And merger mania is going to become even more intense. The
people who interrupt your dinner hour or inundate your mailbox with financial
information now have an even greener light and will be able to snare U.S.
households' most closely held money secrets, Bryan said.
The bill has
the imprimatur of the nation's biggest financial gurus, including Federal
Reserve Chairman Alan Greenspan. Such experts have long argued that to be
competitive in the next century, U.S. financial services conglomerates must
become more global.
But Greenspan also has been warning banks that, as
their appetites for risk get bigger, more protections are needed. He told a
group of bankers that banks are "complex entities that create the potential for
unusually large systemic risks in the national and international economy should
they fail."
That is what analysts call the doctrine of banks that "are
too big too fail." In other words, failure of any of 21 banks would cause a
staggering blow to the entire U.S. economy and, simply put, cannot be permitted
to occur.
"There is dramatic risk, and it is increasing. And this
legislation acts as though it does not exist," Sen. Byron Dorgan, D-N.D.,
declared on the Senate floor in a futile argument against the bill. "I feel very
strongly that [passing this bill] is the wrong thing to do."
Dorgan said
his biggest objections were that the bill doesn't address regulation of hedge
funds or the $ 33 trillion worth of derivatives.
"I hope history will
prove me wrong," he said. "But I believe we are moving toward greater financial
risk."
So what will the fallout from the new legislation be for most
consumers?
* The first thing that will be noticeable is that automated
teller ma chines will be required to disclose the costs of transactions and
permit customers to cancel them before such fees are imposed.
*
Consumers will notice that the friendly and convenient, but often inefficient,
mom-and-pop bank at the nearby shopping center may be bought out, just as has
been occurring for the past two decades.
That may be good news if the
bigger, newer financial institution that replaces it - dubbed a Megabucks Mart
by financial columnist Jane Bryant Quinn - charges smaller fees, has more money
to make loans and handles transactions such as mortgage approvals faster.
* But small, infrequent savers may find themselves squeezed out.
The big new financial institutions want to manage big accounts, and they
may charge fees that are exorbitant by today's standards or provide less service
to small account-holders.
* Those irritating dinnertime phone calls from
people who want to invest your money will increase.
Telemarketers are
barred from getting account numbers or access codes, but you will be
increasingly bothered by callers from the big outfits that want your business.
* You can tell your financial institution, in writing, that you don't
want your personal financial information shared with third parties, such as
telemarketers, but the financial institution can share that information with its
own companies in joint marketing arrangements to sell financial services.
But new rules will keep giant retail outfits from owning banks.
* More people will know more about the state of your financial health.
One institution will have a computer printout with how much you earn, your tax
return, how much you have in your bank account, how much insurance you have, how
you spend your money and how much your investments total.
And there's
nothing you can do about it.
* Your loan application at the bank may be
turned down because the bank will easily get your health information from its
affiliate, the insurance firm that has your health records.
Clinton's
proposed regulations to keep medical records private won't take effect for two
years.
* New rules will go into effect to let you know that your loan is
not dependent on your buying insurance from the bank's new insurance affiliate.
You will be able to sue if you think you have been misled.
*
Banks must lend to inner-city businesses and minority borrowers, under a
provision called the Community Reinvestment Act, but critics say it actually
weakens current regulations against discrimination. But first lady Hillary
Rodham Clinton won a battle; the bill sets up micro-enterprise loans to provide
thousand-dollar loans to tiny busi nesses.
Sen.Phil Gramm, R-Texas,
chairman of the Senate Banking, Housing and Urban Affairs Committee, who
spearheaded the bill - dubbed the Gramm-Leach-Bliley Act - through Congress,
said he didn't set out to benefit big New York banks.
If consumers don't
benefit, the law will be overturned, he said, but insisted that is unlikely.
LOAD-DATE: November 6, 1999 
