WASHINGTON - Treasury Under Secretary Gary Gensler on Friday dismissed the financial services industry's argument that the White House should delay privacy legislation to give pending regulations time to work.

Instead he contended that the Clinton administration bill, introduced last week in Congress by Democratic allies, is needed immediately to toughen the consumer privacy protections in the Gramm-Leach-Bliley Act enacted last fall.

"There are clear gaps in the current law," Mr. Gensler said in an interview. "We know now the American people want to have a choice about sharing their information, particularly sensitive information" such as medical records and spending habits.

The Clinton administration tried to strike a balance between each individual's "zone of privacy" and legitimate interests of companies to target their marketing efforts, he said.

For instance, the bill would expand the exemptions in Gramm-Leach-Bliley. It would let financial institutions provide consolidated account statements without giving customers a chance to opt out, and permit operators at call centers to freely provide information from accounts at different affiliates or use that information for selling services.

Industry officials described these compromises as minimal, and insisted the federal government must agree to preempt state privacy laws.

"The industry isn't going to have this conversation until preemption is on the table," said Joe Belew, president of the Consumer Bankers Association.

Mr. Gensler said the industry would serve its self-interest by accepting tougher laws soon. "This is good for the financial institutions," he said, "because the core of their franchise is the trust customers have in them.He insisted the Financial Information Privacy Protection Act would not be an extra burden, but merely a layer of added protections on Gramm-Leach-Bliley.

Under the bill, financial institutions would be required to give customers a chance to block information sharing with affiliates and third parties. Gramm-Leach-Bliley requiresd firms to offer such an "opt out" before disclosing information to third parties but doesid not restrict data sharing among sister companies.

The White House bill would require customers to give their explicit permission, or to "opt in," before firms could share customer medical or detailed spending data.

Consumers would have the right to view and correct most information about them at their financial institutions. However, firms would not be forced to release proprietary information, such as credit scoring formulas, or law enforcement information, such as suspicious- activity reports. Nor would they have to create new records to comply with customer inquiries.

Industry officials objected as adamantly as ever, however.

"We just don't want this to be touched legislatively," said Kenneth A. Guenther, executive vice president of the Independent Community Bankers of America. "It would create confusion, uncertainty, and unintended consequences. We want it left alone this year."

Backed by Senate Banking Committee Chairman Phil Gramm, industry officials have strenuously argued that Gramm-Leach-Bliley enacted the most sweeping financial privacy protections ever and that these should be tested before new laws are passed. Regulators are expected to issue rules implementing the new law this week, starting with a vote today by the National Credit Union Administration. Sources said that the effective date for these rules has been delayed to July 1 in response to industry demands for more time to comply.

Lobbyists are predicting Democrats willdo not push the bill to completion in this year's short session but that they will use it as a campaign issue to attack Republicans. Still, the President highlighted the bill in a recent speech, and Republicans may be forced to pass legislation to avoid being portrayed as anti-consumer.

"Given … the fact this is a Clinton-Gore effort, they are feeling the pressure," Mr. Guenther said of Republican leaders. "The most heat is on the medical privacy front."

Mr. Gensler avoided predictions, but said the administration has momentum on its side. Gramm-Leach-Bliley included more privacy protections than anyone predicted a year ago, he said, and the public expects greater protection and does not make a distinction between bank affiliates and third-party partners.

Most sources predicted serious negotiations will have to wait until next year.

"The issue has been made too political," said Leigh Ann Pusey, senior vice president of federal affairs for the American Insurance Association. "You can't have a rational, fair discussion right now."

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