Imagine e-mail from a stockbroker recommending a portfolio based on an internal review of your checking-account activity. Or a call from a bank clerk to a favored customer offering discounts on insurance coverage. Or a personalized letter proposing ways your newly widowed mother can invest her insurance money.
With passage of legislation overhauling the financial services industry imminent, these sorts of pitches could become as routine as direct-mail promotions for credit cards and magazine subscriptions.
That's because the legislation, a historic departure from Depression-era laws, will enable banks, securities firms and insurance companies to more easily merge with one another. And it will allow them to share--without customer permission--detailed account transactions, insurance details and an array of other personal information.
Industry officials believe such sharing will help them turn mountains of customer data into innovative financial products and services. They say the law catches up to trends long underway, making the system more efficient and better able to offer sophisticated services at a lower cost.
"The more efficient the business is, the better off everybody is," said H. Rodgin Cohen, a banking-law specialist and partner at Sullivan & Cromwell in New York. Cohen described the legislation as one of the "major financial services bills of the 20th century."
But consumer advocates and their allies on Capitol Hill say this industry dream-come-true comes with a heavy price: individual privacy. Not only does it shred old-fashioned notions about confidentiality, these advocates say, it also strips away an individual's control over information routinely cited as among the most sensitive.
In general, consumers will have no right to stop the sharing of personal information among affiliated companies. In many cases, they may not even be able to prevent a bank from sharing information with telemarketers pitching financial products, as long as the marketers sign a contract agreeing not to pass those details on to another company.
Supporters of the legislation argue that the bill actually promotes privacy by requiring banks and other companies to provide notice about how they share information and bolstering the government's ability to enforce violations.
But some privacy specialists say that obscures the bill's real, far-reaching impact on consumers.
"This is an astounding loss of privacy for American citizens," said Joel Reidenberg, a law professor at Fordham University and a privacy specialist. "Those institutions will have access to incredible detail. Citizens will have no way of knowing who's getting access to their personal information."
It may be years before it's clear which side is right on the privacy issue. But there's no doubt it has become a central theme--and will one remain one for a long time--in the debate over the future of the nation's financial services industry.
The issue got traction earlier this year. Consumer advocates and their allies on Capitol Hill struggled to persuade Congress to give individuals a right to limit such sharing, saying it could expose them to potential abuses or marketing manipulation.
This spring, the advocates' effort got a boost when President Clinton appealed to Congress to approve better protection for personal financial data. The U.S. Comptroller of the Currency also issued a stern warning that the banking industry would face tough new laws if it didn't better protect customer information.
A flash point in the debate came in June, when the Minnesota attorney general filed a lawsuit against U.S. Bancorp for allegedly sharing customer names, Social Security numbers and other information with a telemarketing firm in exchange for $4 million in commissions.
The bank settled the suit, agreeing to change some of its practices. But attorneys general across the country are working together to investigate other instances in which banks have shared information with marketers.
In June, the House Commerce Committee surprised Congress and endorsed legislation that would give consumers new authority to stop banks, securities firms and other financial institutions from sharing their information with affiliates or other companies.
But industry officials vowed to reverse that course and quickly made good on their pledge, successfully lobbying for less-restrictive provisions. The Clinton administration recently endorsed the final language in a series of closed-door meetings with congressional leaders.
Although administration officials said they pushed for even stronger provisions, they believe the law bolsters current privacy protections. This week, administration officials scrambled to put a good face on what they acknowledge was a tactical political retreat on a key privacy provision: giving consumers the right to say no to sharing among affiliated companies.
"It was not politically achievable in the context of this bill," said Treasury Secretary Lawrence H. Summers.
But Summers pledged that "we will be pressing, continue going forward" toward giving individuals more authority over how their personal information is used by companies. "This legislation is a significant start," he said.
Industry officials argued that the point of reform is to make it as easy as possible for financial services companies to merge with one another and share customer names, addresses and account data. At a time when computers and information are the driving force of the nation's economy, it doesn't make sense to get in the way of industry innovation, financial services officials say.
In addition to improving services, the flow of information will enable bankers, insurers and others to cut down on costly fraud, said Charlotte Birch, a spokeswoman for the American Bankers Association.
"The whole bill is about breaking down the barriers," Birch said. "What the bill tried to do is provide balanced protections without creating undue inconveniences" for businesses.
Advocates and some on Capitol Hill disagree. Said Rep. Edward J. Markey (D-Mass.), who has helped beat the drum for privacy protections: "It's a moral outrage."
But they are pleased about an amendment to the legislation that would permit states to write tougher privacy laws superseding the federal provisions.
"Clearly, it's a positive thing," said Rep. Jay Inslee (D-Wash.). But Inslee said consumers shouldn't have to push state by state: "Consumers need to fight and win this battle once, and that's in the U.S. Congress."