Congress has a lot of banking-related legislation on its plate. But anything that doesn't take financial privacy into consideration may get sent right back to the kitchen.
"Financial privacy, as an issue, will affect and overshadow all other legislative issues this year," said Michael Flood, senior analyst for banking in the regulatory advisory services group at KPMG LLP, during its regulatory perspectives teleconference.
The primary battleground is the Fair Credit Reporting Act, which has pre-approved credit provisions scheduled to lapse at the start of 2004. These provisions allow banks to share loan application data and credit bureau reports with their affiliates, provided that the customer has been given the chance to 'opt-out.' "If it isn't reauthorized, states can enact their own privacy legislation, which can lead to a miasma of 50 different regulations," said Flood, who likened the possible result to the situation faced by the insurance industry.
But the alternative might not exactly please bankers, either. Senator Richard Shelby (R-Ala.), chairman of the Senate Committee on Banking, has long been a staunch advocate of financial privacy. "He has not given an opinion on FCRA reauthorization, because he wants buy-in from financial institutions on an 'opt-in' approach to financial privacy and information sharing which would keep you all very, very busy if it passes."
Although Congressman Michael Oxley, chairman of the House Committee on Financial Services, supports FCRA reauthorization, Flood said that he has heard indications that the House won't move a bill forward until Shelby does.
The situation puts banks in a tricky lobbying position: either acquiesce to a national, one-size-fits-all approach, or fight 50 privacy battles across the country.
In the meantime, other banking legislation might also come under scrutiny regarding privacy implications. For instance, questions have already been raised during hearings on the "Check 21" check clearing act, concerning the ability of banks to perform data mining on the information printed on checks deposited for collection. Other bills, such as regulatory relief, deposit insurance reform, and business checking liberalization, may also get held up until a financial privacy solution can be reached.
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