Congress Tries to Reverse Privacy Provisions in Banking Act

Bi-partisan bills were introduced in the House and Senate Wednesday seeking to reverse the key privacy provisions of the Financial Services Modernization Act, which is currently awaiting President Clinton’s signature.

The measures seek to restore the opt-in provisions in the original version of the financial services reform legislation. The original provision had been replaced with an opt-out mechanism shortly before the Senate voting 90-8, and the House voting 362-57 sent the measure to the White House, last week.

In its original form the act allowing banks, insurance companies and securities firms to merge and compete with each other, would have required an individual to opt in with written permission before personal financial data, such as bank and credit card numbers, could be shared with subsidiaries and affiliates or with third parties, including direct marketers and list companies.

Sponsoring a move to restore the legislation’s original opt-in financial privacy protections are House Reps. Edward Markey (D-MA), and Joseph Barton (R-TX), and Senators Richard C. Shelby (R-AL) and Richard H. Bryan (D-NV).

The four were among those who voted against final passage of the financial services reform act, known as the Gramm-Leach Act. Republican lawmakers, Senator Phil Gramm (R-TX), and Rep. James Leach (R-IA), chairman of their respective chamber’s Banking committee, shepherded the measure, allowing states to enact tougher financial privacy laws to passage.

Introduction of the restorative legislation “once again dramatizes the fact that the direct marketing industry is going to face more and more privacy battles, opt in versus opt out,” observed Richard A. Barton, the Direct Marketing Association’s senior vice president of Congressional matters.

Predicting that “the issue is going to be joined in a lot of places next year and probably the year after,” he said the industry needs to be prepared to explain its preference for opt out versus opt in when dealing with personal financial information shared with third parties.

Privacy advocates like Robert Ellis Smith, publisher of the Rhode Island-based Privacy Journal, prefer an opt-in mechanism. Smith, in previous comments to DIRECT Newsline, called the opt-out provision in the financial services bill “a disaster for privacy.” He said its “many loopholes” allow “unfettered exchange of personal financial information among affiliated and unaffiliated” financial institutions.