After weeks of intense, behind-the-scenes bickering over consumers' right to control their confidential financial and medical information, the House of Representatives was poised last night to approve by a large margin a bill that would overhaul the financial services industry.
The bill, which is expected to win the support of almost all Republicans and at least 60 Democrats, would rewrite banking laws dating from the Depression era and the 1950s that prevent commercial banks, securities firms and insurance companies from merging their businesses.
Under the bill, banks, brokers and insurers would be able to combine -- and to share -- customer transaction records and other sensitive information.
Last night's expected passage would mark a significant event in the 20-year legislative effort to overhaul the financial services industry -- the first time such a bill has passed both the House and the Senate.
Now, House and Senate members must meet to hammer out key differences between the two versions. The Senate passed its own version of the bill in May by a 54 to 44 vote, and it differs in many areas from the House version. Those differences -- and concerns raised by the White House -- may make it impossible for lawmakers to achieve final passage of the legislation.
In addition to redefining the financial services industry, the bill also would represent the first major change in consumer privacy laws in several decades.
Key provisions of the House bill include giving the Treasury and Federal Reserve Board joint supervision of the nation's banking system, preventing any non-financial companies (such as automakers) that don't already own a bank from obtaining one and preserving laws that require banks to invest in underserved communities.
On privacy, which emerged in recent weeks as so contentious an issue it nearly derailed efforts to bring the bill to the House floor, the bill allows consumers to prevent medical information obtained for insurance purposes from being used in any other way -- by an insurer's banking or insurance affiliate, for example.
House members last night also were set to amend the bill to require financial institutions to craft privacy policies and to clearly spell out to consumers their policies. The amendment would also allow consumers to block companies in most instances from sharing or selling financial information to third parties. One exception would permit a bank to tell a check printing company a customer's account number.
The bill also would make it a crime for someone to use another person's name or other information to obtain checking-account and other financial data, a practice known as "pretext calling," except in cases involving child support.
The financial services industry succeeded in convincing lawmakers to kill a provision backed by Rep. Edward J. Markey (D-Mass.) that would have allowed consumers to prevent the sharing of financial information -- such as addresses, phone numbers, birth dates, Social Security numbers, and checking and credit card account information -- even among affiliated financial companies. The industry argued that such a provision would defeat the purpose behind the many mergers that have occurred among banks, securities firms and insurance companies in anticipation of the laws being changed.
Rep. Martin Frost (D-Tex.) had worked hard all week to help craft the privacy amendment, which represented a compromise that the industry, Democrats and Republicans could all support. But at the last minute, Frost and other Democrats withdrew their support from the amendment, dealing a blow to Republican efforts to maintain a united front between party leaders on the privacy issue.
The Republicans had felt Democratic support was necessary so Republicans could not be accused of having buckled to the industry on the consumer privacy issue. But Frost and others withdrew from the amendment Wednesday night after House Republicans refused to support an unrelated provision that would bar banks from affiliating with property and casualty insurance companies that illegally avoid business in minority neighborhoods.
Republicans had stripped this "redlining" ban from the legislation when crafting the rules for debate on the House floor. The insurance industry had lobbied against it because it would have officially made the Department of Housing and Urban Development an insurance industry regulator, something the insurers have fought for years. Insurers argue that state laws already prevent redlining. The dispute nearly prevented the bill from coming to the floor, but the Republicans prevailed 227 to 203 on a near party-line vote.
Frost said yesterday the lack of cooperation from the Republicans on the redlining issue "sets a contentious tone" in the House that likely will preclude bipartisan efforts on other legislation.
"The Republicans were very short-sighted on this. They had a chance to set a bipartisan tone," Frost said. "What they have effectively now said is `We don't care about bipartisanship.' "
The White House yesterday expressed general support for the House bill. It has said it opposes the Senate's version, which the White House says gives too much regulatory oversight to the Federal Reserve and weakens laws requiring lending to underserved areas. The Senate version also includes only one provision on privacy, which would make pretext calling a crime.
Sources say the White House has left open the possibility that President Clinton might use privacy issues to oppose any final bill that fails to include key provisions that White House has said are necessary to avoid a veto.
Merrill Lynch & Co., Citigroup and major insurance companies say the overhaul is necessary if the U.S. financial services industry is to remain competitive here and abroad.
CAPTION: Rep. Martin Frost withdrew support for a privacy amendment.