The privacy debate heated up Thursday on Capitol Hill and slowed a House Commerce Committee plan to vote on financial reform legislation.
The committee was expected to approve a bill late in the day that would eliminate the restrictions on mergers among banks, securities firms, and insurance companies-but only after adding tougher safeguards for consumer financial information held by these conglomerates.
The committee defeated on a 26-to-23 vote an amendment by Rep. Edolphus Towns, D-N.Y., that would have let commercial companies buy unitary thrifts. Banking lobbyists had fought the measure.
But privacy was the hot topic a day after Minnesota's attorney general sued U.S. Bancorp of Minneapolis for allegedly selling confidential customer data to a telemarketer. The banking company denied the charges.
The lawsuit followed the comptroller of the currency's rebuke of the industry's "seamy" information-sharing practices in a speech Monday.
"We would be derelict in our duty here if we ignore consumers in a stampede to remove" the Glass-Stegall Act, said Rep. Frank Pallone Jr., D- N.J. of the commerce committee.
Under pressure from top Democrats, the committee's Republican leaders were expected to push through a compromise that would require financial holding companies to give customers a chance to "opt out" of having their information shared with telemarketers or other third parties.
However, an exception was included for frequent flier miles awarded to credit card users, and for other programs that are seen as benefiting consumers.
The amendment also would give consumers the right to correct data shared with affiliates or outside parties. The Federal Trade Commission would punish violators of the privacy measures, but consumers would not be given the right to file lawsuits.
Other committee members warned against any rash action on an issue as complex as privacy because it could have unintended consequences.
"We need to be very careful what we do here," said Rep. W.J. "Billy" Tauzin, R-La., because "we do not want to disadvantage . . . our information-age economy . . . by doing the wrong thing to protect the sacred right of privacy."
The Commerce Committee was expected to stop short of the tougher privacy protections sought by Democratic Representatives John D. Dingell of Michigan and Edward J. Markey of Massachusetts. They would require customer permission, or an "opt in," before information could be shared with outside parties. Their plan would let financial companies share information among affiliates as long as the customer has a chance to block it.
Two weeks ago, the banking, insurance, and securities industries warned that they would oppose the bill if onerous privacy requirements were added. Industry lobbyists would agree only to detailed policies on the use of customer data and disclosure to consumers. The Commerce Committee compromise would add the mandatory opt-out option for consumer.
Lobbyists were forced to give more ground this week in light of the mounting privacy controversy.
Any additions should be "narrowly crafted," Leigh Ann Pusey, the American Insurance Association's senior vice president of federal affairs, wrote in a letter Thursday to committee members. She strongly urged rejection of the "sweeping" changes in the Dingell-Markey amendment.
In a precursor to the showdown on the main privacy amendment, the committee argued for more than an hour before adopting on a 25-to-23 tally a separate amendment that would prevent insurance companies from sharing consumer medical information unless consumers grant permission. Exceptions included use of the information for medical research and underwriting purposes.
On unitary thrifts, committee Chairman Thomas J. Bliley Jr. urged lawmakers to let these institutions be purchased by nonfinancial companies.
The Virginia Republican said a ban on such sales would impair their ability to raise capital and the "healthy competition" that thrifts provide banks.
"Thrifts invest an average of over 70% of their assets in residential mortgages," Rep. Bliley argued. "With interest rates edging back up, I don't know why we want to limit the ability of thrifts to access capital and help first-time homebuyers."
Rep. Steve Largent, R-Okla., said that the bill would greatly benefit thrifts overall and that prohibiting them from selling out to a commercial company would inflict only "marginal harm" because plenty of other buyers exist. He and others argued that it was more important to prevent the kind of ties between commercial and banking companies that contributed to the Asian economic crisis.
