WASHINGTON - The battle over customer privacy heats up again this week on various fronts as the financial services industry tries to defend itself from critics on Capitol Hill and in New York who are demanding tougher laws.

The first skirmish is set for today in Albany, where influential committee chairmen of the New York State Assembly will kick off two days of hearings on whether the state should go beyond the confidentiality safeguards in the Gramm-Leach-Bliley Act.

Though the basic arguments on both sides are familiar, observers will be looking for hints on which way Albany lawmakers are leaning. No legislation has been offered in New York this year, but lawmakers there and in more than 20 other states are under pressure this election year to adopt stricter privacy protections.

"New York is absolutely a bellwether state," said Edmund Mierzwinski, consumer program director for U.S. Public Interest Research Group and one of the scheduled witnesses.

Banking and insurance industry witnesses say they will argue that Gramm-Leach-Bliley should be given a chance to work. That law, enacted last November, bars financial institutions from disclosing information to unaffiliated third parties until they have given customers a chance to block such sharing. Rules implementing the law are expected to take effect in November. Regulators issued proposals last month and are accepting comments through March 31.

"If New York were to legislate additional privacy restrictions, it could very likely contribute to an inconsistent patchwork of conflicting legislation across state borders," said an advance copy of testimony by Michael P. Smith, president of the New York Bankers Association.

"This would undoubtedly result in additional expenses on what is increasingly an interstate financial system, and would create unnecessary confusion both to consumers and banks seeking to comply with a dizzying array of inconsistent legislation."

Yet New York Attorney General Eliot Spitzer, who is scheduled to testify Friday in New York City at the second day of hearings, is expected to call for tougher limits. Mr. Spitzer favors requiring financial institutions to get explicit customer permission before sharing information with unaffiliated third parties.

Mr. Mierzwinski said he will urge New York lawmakers to go a step further and require customer permission before disclosures to affiliates of the same company, too. "The federal law only provides disclosures, not protections that are meaningful," he said.

Industry witnesses will try to bat down these arguments for the so-called "opt in," contending it is inefficient, will raise product costs, and impede customers from finding out about products they might want.

"It would be a major mistake to require consumers to opt in before a financial institution may disclose information to nonaffiliated third parties," according to an advance copy of testimony by Gilbert T. Schwartz, a banking lawyer who represents the Financial Services Coordinating Council.

"The burden of requiring an opt-in by consumers in order to share information is enormous. … It is not clear why consumers have failed to opt in. Do consumers who do not opt in fail to do so because of concerns about privacy, or merely because they overlooked the response card?"

Among the industry's other arguments are that guidelines developed by trade groups show a willingness to self-regulate, and that tougher laws would disproportionately hurt small banks.

But supporters of tougher privacy laws will have plenty of other chances this week to get their message across.

The Federal Deposit Insurance Corp. is scheduled to hold a half-day forum Thursday entitled "Is it Any of Your Business? Consumer Information, Privacy, and the Financial Services Industry." Among the featured guests are Peter P. Swire, the Clinton administration's point man on privacy, and Federal Reserve Board Governor Edward M. Gramlich. Among the scheduled panelists from the banking industry are Julie Johnson of Bank One Corp. and Thomas Sheehan of Grafton State Bank.

Sen. Richard Shelby, R-Ala., and Rep. Edward J. Markey, D-Mass., have invited Mr. Spitzer and Minnesota State Attorney General Mike Hatch to speak Thursday to the Congressional Privacy Caucus, a bipartisan group of lawmakers interested in the topic. The state officials have each targeted major banks concerning the sale of information to marketing firms and forced them into highly publicized settlements.

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