Consumer advocates rebuke their Senate ally; Sarbanes is applauded, then criticized for actions on bank customer privacy


WASHINGTON -- Earlier this year, Sen. Paul S. Sarbanes won applause from consumer advocates for drafting a bill to bar banks from selling their customers' financial data to other companies without the customers' consent.

Now, with the senior Maryland Democrat playing an active role in shaping separate legislation dear to the banking industry, Sarbanes is facing criticism from an unexpected source: those same consumer advocates.

Intent on preserving requirements that banks expand lending in low-income neighborhoods, Sarbanes appears ready to yield to industry demands that the bill exclude the very consumer protections that the senator had pushed for earlier. That has led Sarbanes' longtime friends to register their displeasure. "He needs to insist that it be included in the industry's dream bill," said Edmund Mierzwinski, director of consumer programs at U.S. Public Interest Research Group.

Sarbanes' earlier measure, Mierzwinski said, "has no chance of passing as a separate piece of legislation."

The senator, who received a 90 percent rating last year from the Consumer Federation of America, said he was still promoting the consumer protections. But he said he was convinced that the Republican-led panel that is negotiating the bill's final form would refuse to include those protections.

"We've consistently had it on the front of our agenda," Sarbanes said yesterday. "We're trying to push it as best we can."

House and Senate negotiators are trying to resolve different versions of legislation to dissolve the Depression-vintage barriers separating the insurance, banking and investment industries.

Though most lawmakers favor those reforms as especially important in an age of mega-mergers and instant global commerce, some oppose many elements of the sweeping bill.

Privacy advocates have pushed for provisions to limit what a financial institution can do with information on a customer. The Senate version of the bill contains no such protections.

Banks now say they are willing to accept the House's version, which gives customers the right to bar financial institutions from selling information -- credit-card debts, for example, or the size of a mortgage -- to others, such as tele-marketers.

But banks and marketing firms objected to a push by consumer advocates to require banks to ask clients for permission to put their names on such lists. The banks successfully opposed a ban on data sharing among companies that are part of one corporate family, proposed by Rep. Edward J. Markey, a Massachusetts Democrat, and Rep. Joe L. Barton, a Texas Republican.

The companies argue that such limits would unfairly restrict commercial free speech. "There are a lot of people who don't know what choices are out there," said Jerry Cerasale, senior vice president at the Direct Marketing Association.

The main battle is over the Community Reinvestment Act, which encourages banks to lend in economically distressed areas.

Sen. Phil Gramm, the Texas Republican who is chairman of the Senate Banking Committee, argues that the law has enabled community groups to secure dubious loans that amount to "extortion." He is seeking to exempt smaller banks and to bar confidentiality agreements between the community groups and the lenders.

Sarbanes has made the reinvestment act his major priority. President Clinton, meanwhile, has threatened to veto the entire bill over the Republicans' proposed changes to the community lending requirements.

A spokeswoman for Gramm said he preferred that privacy-protection proposals be considered in a separate bill, such as Sarbanes' earlier legislation, so he could study them. Critics say Gramm just wants to sideline the privacy measures.

"When I'm pushing a bill, and I don't want this piece of legislation in there, I say, 'Gosh, why don't you bring that up in a separate bill?' " said Sen. Richard C. Shelby, an Alabama Republican who favors greater curbs on banks' use of customer information.

There is no guarantee that the banking bill will pass this year, congressional aides and lobbyists say. To the dismay of Democrats, the Republican chairmen of the three relevant congressional committees are meeting privately this week to draft a joint version.

Two Democratic aides said that, at most, they expected a watered-down version of the House bill -- with consumer protections considered so weak that 21 state attorneys general, including Maryland's J. Joseph Curran Jr., wrote to condemn them as undermining state regulations.

"I'm hopeful we'll address the privacy issue," Sarbanes said. "There are some members who want to go beyond the House bill. Whether that's possible, that remains to be seen."

For now, consumer advocates are blaming Sarbanes for not pushing hard enough.

"So far, [Sarbanes] hasn't turned out to be a strong finisher on privacy," said Evan Hendricks, editor and publisher of Privacy Times, a Washington-based publication. "He understands the issue the best, he's one of the great hopes for privacy, but he hasn't gone to the mat yet."

Pub Date: 10/06/99

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