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ALERT! |
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House and Senate Conferees are still working on the financial services modernization bill, also known as HR 10/S 900. This bill will allow banks, insurance companies and securities firm to merge into financial conglomerates. The bill has been the financial industry's dream for over 12 years and includes their wish list for the new millennium.
What's in the bill for American consumers? At this point not much.
What's still up in the air:
· Will consumer get strong privacy protections?
The financial industry defeated a series of amendments that would have required they get a customer's prior approval before sharing that customer's information with affiliates or third parties or, at a minimum allowed a customer to stop an institution from sharing their private financial records. A range of advocacy organizations from the EagleForum and Free Congress Foundation to the ACLU and Public Citizen supported this bipartisan privacy amendment offered by Senators Shelby and Bryan and Congressman Markey. Chairman Gramm indicated that consumers who didn't like a bank sharing their information could simply vote with their feet. Unfortunately the reality is that almost all banks don't allow their customers to have control over personal financial information in any meaningful way. A survey of the privacy policies of the top banks in the country shows that all of them do not provide customers any say in sharing personal information with affiliated companies. In short, customers have no where to go to keep their information private.
The existing language on privacy in the bill is ineffective and unacceptable. Those provisions offer no real privacy protections because of loopholes designed to allow banks to continue to share information with anyone they want so long as such sharing is covered by an "agreement." Thus, with a wink and a nod a bank will be able to conduct business as usual. Likewise, privacy protections are meaningless if they do not extend to information sharing with affiliates.
· Will there be strong safeguards for bank customers?
The bill will create a new world of one-stop-shopping. Whether this will be good for consumers remains unseen. The question to be answered is how well will consumers buying financial products and services be protected. Some complex financial transactions, like the sale of investments, require that any product sold be "suitable" for the investor. Under the bill, banks selling other complex products, like insurance, will not be subject to similar suitability rules. These rules would simply ensure that banks recommend product to consumers that are tailored to fit their financial needs.
There are some other protections that the Conferees should keep in the bill. For example, the bill requires banks to inform their customers when products are not FDIC- insured and physically separate deposit taking from non-deposit sales activities. The bill also includes anti-coercion rules that would prohibit banks from selling insurance products to loan customers while a loan application is pending. The bill contains a mechanism to enable consumers to recover losses when banks violate the rules.
· Will banks get to thumb their nose at state consumer protection laws?
Consumers deserve the best available protections, whether at the state or federal level. The bill must clarify that all banks, including national banks, must comply with stronger state consumer laws. The bill currently contains several provisions that would allow banks to avoid having to comply with state consumer protection efforts, such as curbs predatory lending, limits on ATM fees, and caps on sky-high interest rates. Those preemption provisions could also put an end to state Attorneys General efforts to protect the financial privacy of consumers.
In addition to saying "no" to strong privacy protections, the Conference Committee has said "no" to some other changes that would have helped consumers:
· No to Basic Banking Accounts:
The Conferees voted no to an amendment offered by Congresswoman Maxine Waters to require financial institutions to offer affordable basic banking accounts. At a time when big banks are charging bigger fees and, according to the FDIC and Fed Chairman Greenspan, require increased scrutiny because if they it will be a substantial cost to taxpayers, it seems that the least banks can do is offer affordable accounts.
There are over 12 million unbanked Americans, many of whom cite bank fees as a reason why they don't have a bank account. Congress passed on an opportunity to help them as well as other middle class families stung by high bank fees by failing to provide for low cost accounts in this bill.
· No to stopping mutual insurance companies from redomesticating:
It is only fair that when mutual insurance companies convert to stock companies that their policyholders get some benefit. The bill contained a provision that will allow a mutual insurance companies to avoid compensating their existing policyholders when converting to stock. This is unfair for the policyholders. Today the Conferees defeated an amendment that would have removed this bad provision.
Consumers Union, Publisher of Consumer Reports magazine, is an independent nonprofit testing, educational and information organization serving only the consumers. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public and protect consumers.
