Comptroller of the Currency John D. Hawke Jr. has a harsh warning for banks: Treat customers better or face onerous new laws and regulations.

"There is mounting evidence of an increase in banking practices that are at least seamy, if not downright unfair and deceptive," Mr. Hawke said Monday in a speech to bankers attending a risk management conference.

He said these practices "virtually cry out for government scrutiny," and "the persistent failure of the industry itself to address abusive conduct creates a fertile seedbed for legislation."

Rep. John J. LaFalce, the ranking Democrat on the House Banking Committee, seconded Mr. Hawke's warning.

"In a marketplace that offers consumers numerous choices of financial service providers, practices that place short-term profits above customer relations could threaten the long-term viability of our banking institutions," the New Yorker said in a prepared statement.

"If industry groups do not initiate fully responsive measures to address these abuses, the comptroller is entirely correct in saying that new legislation may be inevitable."

Mr. Hawke said policymakers are particularly concerned about banks' selling customer information to telemarketing firms in return for sales commissions.

According to Mr. Hawke, the bank accounts of customers who indicate an interest in telemarketers' offers are being charged without the customers' knowledge.

The OCC and various state attorneys general are studying the legality of this practice, Mr. Hawke said. But payment of commissions from the sale of confidential information also risks seriously damaging the banking industry's already tarnished image in the eyes of customers, he added.

"One must be troubled about the implications of this practice for the preservation of customer confidence in the confidentiality of the bank- customer relationship," Mr. Hawke said at the conference, which was co- sponsored by the Consumer Bankers Association and Robert Morris Associates.

American Bankers Association president R. Scott Jones said Mr. Hawke is overstating the problem and may be overstepping his authority.

"I do not agree with the comptroller on this issue at all," he said, adding that the industry has already taken a variety of self-regulatory steps. "If a few banks start to abuse the privacy of their customers ... the market will move on them."

One of Mr. Hawke's hosts, Consumer Bankers president Joe Belew, was more cautious but agreed that the comptroller's call to arms bordered on a condemnation.

"When your regulator calls you 'seamy,' that's a cause for alarm," he said. "We totally agree (that) we've got to improve customer service quality. But we should not jump to conclusions based on a few specifics."

Ellen Lamb, senior vice president of the Conference of State Bank Supervisors, said state regulators are tracking the same problems that Mr. Hawke highlighted.

"Our members are concerned about anecdotal evidence that we are hearing about banks selling consumer data to third-party sources," she said. "The bank's top management may not even be aware that it's happening."

In his speech, Mr. Hawke reiterated his concern about another banking practice: withholding subprime borrowers' positive payment information from credit bureaus for fear competitors will steal these lucrative customers.

Federal banking regulators and the Federal Trade Commission are writing joint guidelines to address this issue.

In his prepared remarks, Mr. Hawke cited a handful of laws-Truth-in- Lending, Truth-in-Savings, and Fair Credit Reporting-as expensive compliance headaches that the industry could have prevented.

"Consumer abuses that are allowed to continue without being addressed by the industry are eventually addressed through regulatory legislation," he said.

Mr. Hawke picked up on an issue first raised in November by his predecessor, then-acting Comptroller Julie L. Williams. Her thesis-that poor customer service is a regulatory problem-sparked a debate.

Some agreed that banks must improve the way they treat customers, while others scoffed at the notion that service is a safety and soundness issue, Mr. Hawke said. Because lackluster service eventually will hurt a bank's bottom line, "I believe that customer service is a subject that clearly falls within the OCC's purview," he said.

The national bank agency's consumer hot line is on place to register 100,000 complaints this year, up from 68,000 last year and 16,000 in 1997, he said.

"You must emphasize to Congress and the American people that the banking industry stands ready to take the steps necessary to clean up its act," he said. "Effective self-policing should be undertaken ... to demonstrate to Congress that new regulatory legislation aimed at curbing abuses by banks is not needed."

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