WASHINGTON - Responding to industry pressure, federal regulators next week will postpone until July 1, 2001, the effective date of consumer privacy protections required under the Gramm-Leach-Bliley Act of 1999, according to sources.
The protections were originally scheduled to take effect in November. A delay will give financial firms eight extra months before they are required to notify customers of their privacy policies and give them an opportunity to block the sharing of information with third parties. Information could not be shared until 30 days after notices are mailed.
Next week eight regulatory agencies are scheduled to issue final privacy rules, which cover banks, securities firms, insurance companies, and many nonbanks that handle confidential customer information. The regulators, sources said, will try to downplay the delay by saying the rules technically take effect Nov. 13 as planned, but making compliance voluntary until July 2001.
The move is expected to infuriate privacy advocates on Capitol Hill, many of whom gathered Thursday to discuss President Clinton's tough new privacy legislation. The Financial Information Privacy Protection Act would toughen Gramm-Leach-Bliley protections by requiring financial companies to also give customers a chance to block information sharing with affiliates. Firms also would be required to get a customer's permission before sharing medical or detailed spending information.
"There's no reason the bill shouldn't be able to be passed this year," said Gene Sperling, director of the National Economic Council. "People don't pay us to take every fourth year off."
Rep. John J. LaFalce, D-N.Y., said protecting consumer financial privacy is the single most important issue before Congress. "The original bill was only the first step," he said. "We want to build on that and we are committed to finishing the job."
But Republican leaders in Congress are not interested in reopening the privacy debate this year. Most GOP members want to see how the new privacy rules work before writing more laws.
"We need to give customers and their financial institutions time to absorb those new rules before we consider changing them," Senate Banking Committee Chairman Phil Gramm said in a statement.
But Democrats plan to make privacy an election-year issue.
"The Democratic Party will raise the issue as one that contrasts our party with the leadership of the Republican party," said Rep. Edward J. Markey, D-Mass. "It's too important of an issue" and one that "should animate fall elections, because it touches every American family."
"If the Republican Congress doesn't pass this legislation, I hope the American people hold them accountable," said Rep. John D. Dingell, D-Mich.
Industry officials praised the decision to delay implementation of the new rules.
Bankers had asked for a delay until at least summer of 2001 to prepare their disclosures, ready their computer systems, and avoid mailing billions of privacy-policy notices during the mail crunches surrounding the December holidays or the April income tax filing deadline.
"We would certainly be in favor of that," said Joe Belew, president of the Consumer Bankers Association. "It would really be better for the public to do it during a window when they are not flooded with holiday mail or financial statements during tax season."
Sources also predict that regulators will provide a dozen model disclosure statements to aid firms in drafting their privacy notices. Bankers have complained that agency proposals issued in February were too vague about what details would be required, prompting predictions of 20-page notices that consumers might ignore.
"People are not sure what these disclosures are supposed to look like," said Karen M. Thomas, director of regulatory affairs for the Independent Community Bankers of America.
"We have communicated to the regulators consistently and firmly the need for plain English, model disclosures," said Steve Bartlett, president of the Financial Services Roundtable. "It is clear to us the regulators have heard us and understand the issue."
It remains unclear how other disputes will be resolved, such as the definition of nonpublic information. One alternative would have prevented firms from sharing publicly available customer information unless it is obtained from a public source, such as a telephone directory. The other, which is preferred by banks, would permit the sharing of information from customer records if it is available from a lawful public source.
Robert Sterling contributed to this story from Washington.