President Clinton introduced a sweeping set of consumer privacy proposals Tuesday that could impose substantial new burdens on banks and change many sales and marketing practices.
Under the proposal, banks would have to explain how they share or sell customer transaction data and give customers an opportunity to prevent it.
Credit card issuers would have to expand disclosures on teaser rates, minimum payments, late fees, liens, and convenience checks.
Mortgage lenders would have to significantly expand disclosures made to potential borrowers. Nonmortgage consumer lenders would be permitted to report race, gender, income, and other borrower data to the government.
Additional proposals would affect Internet marketing of credit cards, disclosures of automated teller machine fees, and subprime lending.
"This is a real kitchen sink," said Joe Belew, president of the Consumer Bankers Association. "It's amazing."
However, the White House said its proposal was "not exhaustive." Clinton administration officials vowed to keep an eye on other emerging issues, including payday loans and check processing practices that maximize bounced-check fees.
Industry sources expressed sympathy with the administration's objectives and showed support for proposals to increase consumer financial literacy, enforce restrictions on identity theft, and protect misuse of medical information.
But they said President Clinton is overreaching.
"Much of what they are proposing would dramatically cut back the amount of credit that is available to needy consumers," said Wright H. Andrews Jr., lobbyist for the National Home Equity Mortgage Association. "Many of the proposals are clearly unworkable."
"It's going to be a difficult issue for the industry, primarily because people can propose overly simplistic solutions to what is a complicated problem," said Edward L. Yingling, the American Bankers Association's chief lobbyist. "The banking industry has always prided itself on its ability to protect consumer financial information."
Karen Thomas, director of regulatory affairs at the Independent Community Bankers of America, said consumers can benefit when banks share information, gaining access to discounts or new products.
"There has to be a balance," she said, "because the sharing of information is very important to doing business and to the economy."
The administration's initiative comes at a critical legislative juncture.
A number of the proposals are included in legislation to modernize the bankruptcy laws or permit banks, securities firms, and insurance companies to combine. Whether they stick may affect the administration's-and the banking industry's-final position on the bills.
Moreover, banks face a public relations dilemma. Vocally opposing the privacy recommendations could threaten the successful alliance banks forged with consumer interests against the administration's "know-your-customer" proposals. Regulators withdrew them in March after a firestorm of public protest.
President Clinton presented the privacy proposal at a press conference with the First Lady, Hillary Rodham Clinton, and Treasury Secretary Robert E. Rubin.
"Many people don't have the knowledge to properly evaluate what is truly a dizzying array of options," President Clinton said. "Some are falling victim to new abusive practices. Others are being left out of the financial marketplace altogether."
The administration wants to increase enforcement and penalties for abusive lending practices. Truth-in-Lending coverage of consumer loans and leases, such as auto and home equity loans, would be covered up to $50,000, up from $25,000 today, and civil liability penalties would be raised.
The proposal would give regulators the authority to examine a bank's privacy efforts without waiting for a consumer to complain.
Meanwhile, the Office of the Comptroller of the Currency issued an advisory letter Tuesday, telling national banks to clearly post privacy policies on their Web sights.
Banks should explain the types of information they retrieve from the Web site and how that information is used, the agency said.