The National Association of Attorneys General blasts the financial reform legislation in a draft of a letter to House and Senate negotiators, saying the privacy protections and other consumer safeguards in the legislation would undermine tougher state laws.

The draft letter, which circulated among lobbyists and others last week, reads in part: "These provisions will have the effect of preempting state charities and consumer protection laws with regard to insurance companies within a state, and will not provide adequate protection for private financial and medical records.

"We strongly oppose" the provisions, the group writes.

A spokeswoman for the association said she could not comment on the letter because it is has not been finalized.

The letter urges lawmakers to beef up privacy protections by requiring that banks get "explicit permission" from consumers before disclosing confidential data to affiliates or third parties.

The House version of the financial modernization bill would require financial institutions to give consumers a limited period of time to block data transfers to third-party marketers, but it would not restrict disclosures to affiliates. The Senate version says little about privacy.

"Consumers do not differentiate between affiliates and nonaffiliates when seeking to protect against the sharing of personal financial information," the attorneys general write. "Congress likewise should not differentiate between the two, and should provide equal privacy protections in both contexts."

Their draft letter contends the reform legislation would prevent states from requiring nonprofit insurance groups that convert to shareholder-owned companies -- such as Blue Cross and Blue Shield plans -- to put assets into charitable foundations.

If such insurers seek to affiliate with banks, the attorneys general say, the reform measure could outlaw the foundations requirement as an illegal restriction on cross-industry mergers.

State laws and regulation intended to prevent credit insurance scams and other predatory lending practices could also be jeopardized by the reform legislation, the group's draft letter says.

It also recommends that, to accommodate state laws, the bill's complicated insurance preemption provisions be revised to contain language stipulating that banks and their competitors get the same treatment.

Opposition by state attorneys general, who have proven to be influential on Capitol Hill in battles on tobacco legislation and other matters, could have a significant impact on financial reform legislation, said Robert A. Rusbuldt, executive vice president of the Independent Insurance Agents of America.

Other state regulators have said they are concerned that the measure might usurp their power.

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