As the House Commerce Committee begins refining legislation today that would overhaul the nation's financial services industry, differences over how to protect consumers' privacy will play a central, possibly decisive, role in the debate for the first time.

In recent days, the debate on financial services privacy has become so intense that some industry officials have threatened to withdraw their support from legislation they have pursued for years.

The legislation would revamp Depression-era laws to expand the ability of banks, securities firms and insurance companies to merge with one another and share customer names, addresses and account data to market new services and products.

Consumer advocates have long objected to such sharing without the consent of customers, saying it could expose them to potential abuses, such as a bank denying a loan to a man because it knows that he has a life-threatening disease. But few people on Capitol Hill listened as the legislation cleared the House and Senate banking committees earlier this year.

Then privacy caught the public imagination. In addition to hearing from concerned constituents, legislators received an appeal from President Clinton last month to bolster financial privacy protections. This week, the U.S. comptroller of the currency issued a stern warning that the banking industry would face tough new laws if it didn't better protect customer information.

"There is mounting evidence of an increase in banking practices that are at least seamy, if not downright unfair and deceptive," Comptroller John D. Hawke Jr. said in a speech on Tuesday.

Yesterday, the Minnesota attorney general said he had filed a lawsuit against U.S. Bank for allegedly sharing customer names, Social Security numbers and other information with a telemarketing firm in exchange for more than $4 million in commissions. Attorney General Mike Hatch alleged the bank had violated federal laws and regulations by "allowing the telemarketing company to automatically withdraw payments from a checking account without written authorization." U.S. Bancorp, parent company of U.S. Bank, denied the accusations.

Facing such pressure, legislators have indicated in recent days they might be willing to give customers more control over how personal information is used by banks and other institutions. Industry officials reacted with anger and threatened to walk away from the legislation. "It has certainly become more of a flash-point issue," said John Byrne, senior counsel for the American Bankers Association.

That in turn prompted tense rhetoric from consumer advocates. "I support financial services reform legislation," said Rep. Edward J. Markey (D-Mass.), who has proposed some of the most restrictive amendments to the legislation. "But if the cost of passing a bill is that we fail to close the gaping privacy peepholes now riddling our financial services structure, that cost is too high."

"This [privacy] issue has really kind of taken over the debate in the last few days," said Peggy Peterson, spokeswoman for Rep. Michael G. Oxley (R-Ohio), a member of the Commerce Committee. But Peterson said that few people know for sure what sort of proposals will emerge when the committee considers the bill.

Debate will begin over an amendment by Oxley that would require banks and other institutions to have a privacy policy and disclose it to consumers. The amendment also would give the Federal Trade Commission authority to write and enforce rules about those policies. Oxley intends today to introduce legislation to give consumers an option to limit the sale -- but not sharing -- of personal information to unaffiliated companies. He also may propose limits on the use of medical information.

Markey is pressing for rules that would require financial companies to get customer permission before sharing their information with outside companies. Companies also would have to honor customer requests not to share with affiliates under his plan.

Industry officials contend that Markey's approach would choke off development of the financial services industry and deprive consumers of conveniences and cheaper products. Dan Zielinski, spokesman for the American Insurance Association, said that's unacceptable. "There is a willingness to walk away," he said of representatives from the insurance, securities and banking industries. "They're saying, `If we can't do that, what's the point of the bill in the first place?' "

But consumer advocates intend to fight for every protection they can get in the bill. "Consumers need to have control over their financial information. It's as simple as that," said Mary Griffin, counsel for Consumers Union. "Right now, banks and others can freely share and sell most of your information."