A Clinton administration official and key Democrats on Tuesday blasted a financial industry compromise on consumer privacy protection as too little, too late.

With the House edging toward a vote on financial reform next week, the bill's limits on financial conglomerates sharing or selling customer data have become an explosive issue.

Industry lobbyists and trade group officials on Monday offered to let customers block data transfers to third parties. The deal would continue to let financial companies share information freely among affiliates.

Peter P. Swire, President Clinton's point man on privacy, said the proposal did not go far enough. "The President's position has been 'opt out' for both affiliates and third parties," Mr. Swire said at an Electronic Financial Services Council conference.

Rep. Edward J. Markey, who has led the fight for tough privacy limits, noted that the House Commerce Committee defeated a plan similar to the industry's compromise two weeks ago.

"I don't think it is a politically tenable position," the Massachusetts Democrat said Tuesday. "There is no bill which is worth passing that does not have privacy protections built into it."

Rep. Jay Inslee agreed that consumers ought to be able to block information-sharing with affiliates and third parties.

"The banking community has not succeeded in ensuring privacy, but quite the opposite," the Washington Democrat said. "Legislation is clearly and abundantly necessary."

Community banks and thrifts also weighed in, criticizing the proposal as a solution tailored for big banks. They argued that the compromise would interfere with the contractual agreements small institutions have with data processors and other third parties.

"This special carve-out would reduce their ability to compete vis-a-vis larger financial institutions," the Independent Community Bankers of America and America's Community Bankers wrote House Speaker J. Dennis Hastert on Tuesday.

But House Republicans and some administration officials hailed the industry's proposal.

House Banking Committee Chairman Jim Leach endorsed the compromise, hinting that he may be on the verge of introducing a similar plan. "That would be a very credible addition to this bill," the Iowa Republican said after a dinner speech Monday to the Electronic Financial Services Council.

"Those sound like positive steps to deal with this issue," Julie L. Williams, chief counsel of the Office of the Comptroller of the Currency, told reporters Tuesday. She added that the industry was slowly starting to clean up its privacy practices after stinging criticism by Comptroller John D. Hawke Jr. two weeks ago. The agency will be taking steps soon-possibly as a part of examinations-to make sure banks enforce their privacy policies, she said.

David Beier, chief domestic policy adviser to Vice President Al Gore, told the Electronic Financial Services Council Monday that the administration favors a "measured approach."

"There is a lot more work that needs to be done, frankly, by the Congress on medical-records privacy and financial-records privacy," Mr. Beier said, but "I know Congressman Leach and the House Commerce Committee are going to come to an amicable resolution on the financial modernization bill that ... the President and the Vice President will be very happy with."

If financial companies are barred from sharing customer data with affiliates, the banking, securities, and insurance industries are expected to oppose the broader financial reform bill.

The House Commerce version would let customers block information-sharing with affiliates and third parties such as telemarketers. The House Banking version has no such restrictions but, like the Commerce bill, would require financial companies to have privacy policies and disclose them. Both bills would prohibit the sharing of medical information without prior customer approval.

Ms. Williams commended the management of U.S. Bancorp for quickly agreeing to end its arrangements with telemarketers after the Minnesota attorney general accused the company of violating fair credit and fraud laws. U.S. Bancorp has denied the charges.

She also noted that Bank of America Corp. soon afterward voluntarily ended its relationships with telemarketers.

"It is evident that now, whatever happens on the Hill, the marketplace has already begun to recognize the significance of distinctions in privacy protections afforded consumers," she said at a Financial Institutions Insurance Association conference.

Yet Ms. Williams criticized banks for doing a poor job of promoting the consumer advantages of data sharing.

"The industry has that responsibility, and I don't think it has been particularly well done," Ms. Williams said. "Explain it. Hopefully you can explain it convincingly."

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