There's good news and bad news for direct marketers if Congress has its way and overhauls the financial services industry. While the Financial Services Act contains some serious privacy guidelines relating to the sharing of consumer data with outside marketing firms, it also will allow for marketing opportunities to increase.
The bill, H.R. 10 — which the House passed (343-86) on July 1 — is designed to deregulate the nation's financial system by allowing banks, securities firms and insurance companies to enter into each other's businesses. It marks the first time in more than 20 years that both houses of Congress voted in the same term to repeal the Glass-Steagall Act of 1933, which restricts the securities activities of national banks and prohibits investment banks from engaging in commercial banking activities.
Proponents of H.R. 10 expect it to increase competition between financial services providers, reduce regulation, help U.S. financial services companies compete in international markets and let community banks go up against mega-banks and Internet banking. They also expect consumers to benefit through more convenient and less expensive financial services.
Dimon R. McFerson, chairman/CEO of Nationwide, Columbus, OH, applauded the House for passing the bill.
“As the financial services industry continues to rapidly change and as foreign competition increases, Congress has taken a giant step to reforming our banking, insurance and securities laws,” he said. “Enactment of H.R. 10 will tremendously streamline the delivery of important financial services for America's consumers.”
The bill means different things to securities firms, banks and insurance companies. If passed, banks will be able to engage in a limited amount of insurance and securities activities. Securities firms will be able to buy banks — currently banks can buy securities firms, but not vice versa. And, insurance companies will gain new banking opportunities and customers.
“You will have greater competition between the three sectors,” said Dan Zielinski, a spokesman for the American Insurance Association, Washington, which represents large U.S.-based property and casualty insurers. “So, in order for companies to maintain or increase market share, they are going to offer more services or certainly expand their marketing opportunities.”
Zielinski said the companies will be able to use shared customer databases, which will give them a “greater opportunity to market their goods to known purchasers of financial services.”
Indeed, the House version contains an amendment offered by Rep. Michael Oxley (R-OH), together with Rep. Deborah Pryce (R-OH) and Rep. Marge Roukema (R-NJ) that would not prohibit financial services firms from sharing data — such as names, addresses, telephone numbers, dates of birth, Social Security numbers, checking and credit card account data — with affiliated companies under the same corporate parent. They also could share data with the kind of third parties necessary to the transaction of the financial service they are providing, such as teleservices firms or billing contractors, which is common practice now.
The amendment, which passed 427-1, requires banks and other financial services companies to disclose their policies for collecting and protecting confidential data annually and allows consumers to opt out of having any confidential financial information disclosed to third-party list companies, direct marketers and telemarketers. Unless consumers opt out each year, this data could be shared. The amendment also would:
* Make it a federal crime for anyone to misrepresent himself to obtain someone's private financial information.
* Require financial institution regulators to set and enforce standards for the security of confidential information.
* Require the Secretary of the Treasury, in conjunction with other financial regulators, to conduct a comprehensive study of the privacy issues involved in interaffiliate sharing of information.
An earlier amendment introduced by Rep. Ed Markey (D-MA) was even more restrictive. It said customers would have to give written approval before financial institutions could share data with third parties or affiliates.
Representatives in financial services firms, the insurance industry and the direct marketing industry said they can work with Congress and how the bill stands.
“We preferred the amendment that was passed, where banks can share consumers' private information with a Lands' End or another company that is going to use the data to sell other stuff, unless the consumer opts out,” Zielinski said.
While officials at the Direct Marketing Association said they don't necessarily believe in adding unnecessary laws, “the practice of opt out and notice — when sharing data with third parties — is in compliance with the DMA's existing guidelines, so we support that,” said Pat Faley, vice president of ethics/consumer affairs at the DMA.
Others expressed more concern. Privacy advocates, for example, said the bill didn't go far enough since financial institutions will have free reign to share consumer information with their affiliates. And, despite an exemption for credit bureaus, some of these companies — such as Trans Union LLC, Chicago — fear financial institutions may put restrictions on what these bureaus do with the data they receive.
“The bill says that the regulatory authorities will provide a notice for consumers to give consent to the use of their data. So, they could devise a consent form that says, 'You can give our data to a credit bureau for credit purposes,'” said Oscar Marquis, general counsel at Trans Union. “It's too early to tell right now, but I think there is a lot of risk.”
Trans Union is working with Congress and the industry to make sure the exemption for credit bureaus stays intact.
Lawmakers expect the bill to pass before the August recess and be signed into law by President Clinton. It now goes before a conference committee between the Senate and the House, where conferees will most likely be chosen this week.
The Senate's version, which passed in May, would take away the Treasury Department's authority to regulate banks and didn't have any privacy provisions. However, “the politics of the issue will dictate that there will be some privacy provision — that is a given,” Zielinski said.
