Defying the banking industry, Clinton administration officials told a House panel Wednesday that customers must be given the chance to object before financial institutions share any confidential data.

"The administration believes that consumers should have the choice to opt out-this is, say 'no'-to the use of their data by both third parties and affiliates," said Gary Gensler, Treasury under secretary for domestic finance.

The administration's message to House Banking's financial institutions subcommittee was repeated by Comptroller of the Currency John D. Hawke Jr. and Federal Trade Commission Chairman Robert Pitofsky.

Their remarks are important because they are the latest, and most unified, signal of how the White House will weigh in on privacy during House-Senate negotiations on financial reform legislation. The House bill would let customers block information-sharing with third-party marketers, but no new restriction would be placed on information transfers to bank affiliates.

Not all the regulators testifying before the subcommittee agreed that the bill's privacy protections should be extended to affiliate transactions. Federal Reserve Board Governor Edward M. Gramlich dodged a formal position but warned that broader privacy protections could undermine the purpose of the bill, known as HR 10.

"What HR 10 is all about is permitting the synergies of financial combinations" between banks and securities firms or insurance companies, he said. "It's just a word of caution that there may be some complications here."

Industry witnesses argued that banks and other financial companies have a self-interest in protecting the privacy of their customers. They warned that Congress risks hampering frequent-flier-mile programs and other existing services as well as the information technology at the heart of business innovation.

"No bank could survive with a reputation of indifference to consumer confidentiality," said L. Richard Fischer, a partner in the Morrison & Foerster law firm here, speaking on behalf of the American Bankers Association, Visa, and others. "Further restrictions on the flow of information could have unintended effects on the economy."

Brandon Becker, a partner at Wilmer, Cutler, & Pickering here, testifying for the Securities Industry Association, said financial companies could support the House's privacy provisions-but nothing beyond that.

Mr. Hawke responded that the industry's complaints of "a chamber of horribles" in the bill are exaggerated. Customers do not understand the distinction between holding companies and affiliates, he said. Failing to extend protections to affiliate sharing "is likely to erode customer confidence."

Industry officials had hoped Mr. Gensler would hint that broader privacy protections could be sought in separate legislation, but he betrayed no plan to cave in on the issue in order to get the reform bill enacted.

"The administration ... sees the House provisions in HR 10 as a floor, and not a ceiling," Mr. Gensler said.

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