Draft of Financial Reform Act Retains Most Privacy ProvisionsThe leaders of the joint conference committee that is attempting to reconcile the House and Senate versions of the Financial Modernization Act yesterday released a draft of the legislation that retains most of the privacy provisions introduced by the House in H.R.10. Certain privacy provisions in the bill that pertained to the sharing of medical information between affiliated insurance companies and banks were removed from the legislation for possible consideration as a separate measure.
Jerry Cerasale, senior vice president of government affairs at the Direct Marketing Association, said the draft appeared to address the DMA's concern that the bill's privacy provisions discriminated against telemarketers as opposed to other direct marketers, but it did not address the association's concern about the sharing of encrypted account numbers.
The legislation, which represents a compromise of S.900 and H.R.10, places restrictions on banks' sharing of customer account numbers with third parties. The DMA maintains that such information can be used to verify customers' identities for the prevention of fraud if it is encrypted to prevent misuse.
"We are disappointed and will try and convince some people to try and allow that," said Cerasale.
The full House-Senate committee will meet Thursday to begin the discussion of amendments to the draft, which committee leaders said they hope to put before Congress by Oct. 20. President Clinton has threatened to veto the bill, which contains sweeping changes in the way banks are permitted to operate, for reasons unrelated to the privacy measures, but the committee's leaders indicated that they would seek to make the necessary changes to garner presidential approval.
The newly drafted bill retains provisions mandating that banks notify customers if they share certain information about them with third parties, and it also requires that banks allow customers to opt out of having their information shared.
"The notice of opt-out for third parties, that pretty much fits with the DMA's Privacy Promise," Cerasale said, referring to the new DMA rules that require members to take certain actions to protect consumers' privacy. "Of course," he added, "we always believe in self-regulation over laws, but it does fit [with the DMA's rules]."
Charlotte Birch, a spokeswoman for the American Bankers Association, Washington, DC, said the ABA was "pleased that the bill was moving toward the center," although she expressed concern that additional privacy provisions could be added in the form of amendments.
She noted that the newly drafted bill also relieved some of the privacy pressure on smaller, community banks by allowing them to share customer information with third parties that perform certain functions for the banks that larger banks often handle within their own operating subsidiaries or affiliates.
Rep. James A Leach (R-IA), chairman of the House Banking and Financial Services Committee, also said the draft "reflects certain modifications designed to clarify and strengthen the authority of the relevant regulatory agencies to enforce the privacy provisions and prescribe regulations implementing them."
Further information was not immediately available.