Just two weeks into the new session, Congress is moving quickly to prevent banks from violating customer privacy rights.
The first significant proposal emerged last week when Democrats led by Sens. Paul S. Sarbanes and Christopher J. Dodd introduced the Financial Information Privacy Act of 1999, which would require federal regulators to issue rules that limit use of consumer data.
"As we proceed in an age of technological advances and cross-industry marketing of financial services, we need to be mindful of the privacy concerns of the American public," Sen. Sarbanes of Maryland said in his floor statement. "Consumers who wish to keep their financial information private should be given a right to do so."
Lawmakers are facing increasing pressure to enact legislation this year. The public fears megabanks are becoming financial Big Brothers that could exploit confidential data, observers said. Separately, the European Union is demanding that the U.S. government tighten privacy standards on U.S. businesses that operate overseas.
As a result, lawmakers are expected to file even more privacy bills this year than the 200-plus introduced last year.
"It is really an issue that is gaining a lot of momentum," said Edward L. Yingling, chief lobbyist for the American Bankers Association.
"We are all gearing up," he said, noting that the ABA's advisory committee of lobbyists spent 90 minutes on the topic Thursday during its two-hour monthly meeting.
Rep. John J. LaFalce, the House Banking Committee's ranking Democrat, plans to introduce an alternative to the Senate bill by early February, an aide said. House Banking Chairman Jim Leach thus far has introduced only narrow privacy legislation that would punish so-called "information brokers" who trick banks into divulging private customer data.
Banking and thrift regulators have issued or are developing privacy guidelines, but lawmakers are mulling tougher requirements.
The Sarbanes-Dodd bill-similar to a proposal struck down by the Banking Committee last year-would set two precedents opposed by the industry:
First, it would bar disclosure of account balances, maturity dates of certificates of deposit, securities holdings, and similar information. The Fair Credit Reporting Act protects credit reports but not these so-called transactional or experience data.
Second, the bill would require a bank to obtain permission from customers before selling or sharing confidential information with an unaffiliated third party. There is no federal restriction on sharing data with unaffiliated companies. The bill would not affect the "opt-out" provisions in the Fair Credit Act that let people bar a company from sharing data with an affiliate.
The Senate bill also would require banks to send notices to customers disclosing what information will be given out, when, to whom, and for what purpose. Customers would also get to verify the data's accuracy.
Industry officials argue that banks police themselves well and that sufficient consumer protection laws exist already.
"We do not see the rationale for it," said Marcia Z. Sullivan, government relations director for the Consumer Bankers Association. "It sounds good, but logistically it would be very difficult if not exorbitantly expensive."
Information sharing among affiliates can speed service and prevent fraud, Mr. Yingling argued. For example, a data base of basic information can eliminate paperwork for an existing customer who applies for a loan and reduce processing time to hours instead of days, he said.
Sen. Sarbanes is unsympathetic, saying studies by regulators have found that banks are not telling customers of their rights nor offering ample opportunities to exercise them. "Unfortunately, industry self-regulation to protect the privacy of information has been tried and, generally, has not worked," he told the Senate.
Consumer advocates want an even tougher law that would require prior consent for the disclosure of any private information and create legal remedies for wronged customers such as the right to sue their banks.
"It's a good first step," Mary Griffin, counsel for Consumers Union, said of the Senate bill. But "there's still more that needs to be done to make sure people's private financial information is protected."
Seeking a compromise, Rep. LaFalce was said to be likely to try establishing more detailed privacy protections but not require prior consent.
Instead, the New York Democrat might offer more sophisticated opt-out choices, which, for example, could let a customer permit disclosure to affiliates but not outsiders. Or a customer could opt out by product line, perhaps allowing disclosure of account information but rejecting sharing of loan application data, a LaFalce staff member said.
The industry ultimately expects some type of privacy legislation, Mr. Yingling said, but fears that hastily drafted legislation could seriously harm the economy or derail other legislation such as financial reform. "If not done right," he said, "it could really be a major problem."