Bill to Overhaul Banking Laws Easily Clears House Panel
The House Banking Committee, breaking a deadlock over consumer privacy, on Thursday overwhelmingly approved legislation to lift Depression-era barriers among banks, securities firms and insurance companies.
The committee voted 51 to 8 to approve legislation that would allow commercial banks to freely affiliate with securities and insurance companies. The bill, sponsored by committee Chairman James A. Leach (R-Iowa) and the panel’s leading Democrat, John J. LaFalce of New York, would repeal the 1933 Glass-Steagall Act and amend the Bank Holding Company Act of 1956, two central laws governing the U.S. banking industry.
The House committee’s strong bipartisan support contrasts with the action last week in the Senate Banking Committee. There a separate bank bill won only a narrow approval over bitter opposition from Democrats who denounced its probable effect on community lending laws.
With Thursday’s action, the House bill becomes the more likely vehicle for banking reform, because the Clinton administration has already said it supports the bulk of that bill’s language.
The bill is strongly supported by Merrill Lynch & Co., Citigroup and Sun Life Insurance, all of which want to see current laws revised so that they can compete more effectively overseas.
The bill will now be referred to the House Commerce Committee, which has jurisdiction over securities markets. That body is expected to approve it, although the timing is unclear.
As Congress tries to overhaul financial services laws and moves to allow the three financial services industries to become more deeply involved in one another’s businesses, fears have arisen about the ways customer information will be shared among affiliates of big new companies.
Reps. Jay Inslee (D-Wash.) and Robert A. Weygand (D-R.I.) proposed including in the bill a privacy measure that would have required new financial conglomerates to give consumers the right to opt out of arrangements for sharing all of their personal data with affiliated companies.
Such “opt-out” requirements are considered less stringent on companies than “opt-in” ones, in which a firm must obtain written consent from a consumer before personal data can be used by an institution or disclosed to others.
But on a 52-6 vote the lawmakers decided to include instead a milder proposal by Leach. It would restrict the sharing of customers’ health information among affiliated companies but would allow transaction data such as checking account histories to be shared even if with an opt-out request. Under current law, opt-out requests apply to a consumer’s credit history but not to his or her transaction data.
Consumer activists, including Ralph Nader, have maintained that the legislation would create serious privacy risks for Americans as banks, brokerages and insurers compiled profiles of customers’ buying habits, hobbies and even health information.
“We’re absolutely disappointed in Mr. Leach in the amount of effort” he expended in “undoing a simple, very reasonable privacy protection,” said Mary Griffin, an attorney for Consumers Union.
Lobbyists for the three financial services industries indicated earlier Thursday that approval of Inslee’s more stringent privacy measure could kill their support for the overall legislation.
One reason the industries have been pushing for financial overhaul legislation is that it would allow them to market their new services by using shared customer data.
The vote came after the panel considered dozens of amendments.
In one, the savings and loan industry won a significant victory in retaining the right of commercial businesses to buy unitary thrifts, a type of S&L; holding company.
The committee voted 29 to 26 to approve an amendment sponsored by Rep. Ken Bentsen (D-Texas) that would preserve existing law to let so-called unitary thrifts be sold to commercial firms.
Unitary thrifts have special powers that allow them to be owned by commercial companies such as auto makers or retailers. Federally chartered banks are not allowed to have commercial businesses own them.