THE WHITE HOUSE

Office of the Press Secretary

FINANCIAL SERVICES MODERNIZATION FOR THE 21ST CENTURY: LOWERING CONSUMER COSTS, BUILDING COMMUNITIES, AND BOOSTING COMPETITIVENESS

November 12, 1999

President Clinton today will sign historic legislation to modernize our banking and finance laws. For the first time, financial firms will be able to offer a full range of banking, securities, and insurance products, stimulating greater innovation and competition. This legislation will have the following benefits:

• Consumers, as well as businesses small and large will have greater choice, more innovative services, and the possibility of one-stop shopping for financial products.
• Prices will be lower as a result of increased competition. Americans spent $367 billion in 1997 on fees and commissions for brokerage, insurance and banking services. If deregulation in other industries is any guide, it is reasonable to expect that increased competition will yield lower prices and billions in savings for American consumers.
• American financial institutions will be more efficient and thus better able to compete in the global marketplace.
• Low- and moderate-income communities will receive new loans and investment spurred by a preserved and strengthened Community Reinvestment Act (CRA).
• Individual privacy will be better protected by new limitations on the sharing of personal financial information.
• The economy will grow stronger as competition lowers the cost of capital for American businesses -- spurring growth.

UPDATING THE LAWS GOVERNING FINANCIAL SERVICES FOR THE NEW ECONOMY

Technological change is revolutionizing how financial products are delivered to consumers and how firms manage financial risks. But our financial services firms are still governed by depression-era laws that limit competition and place unnecessary barriers between banks, securities firms, and insurance companies. This new legislation will:

• Repeal the 1933 Glass-Steagall Act, which has separated banks from other financial firms, and other laws separating banking and insurance;
• Permit the creation of new, more efficient financial holding companies, which can offer banking, insurance, securities, and other financial products to consumers;
• Allow banks to choose the corporate structure for many new activities that best meets their customers' needs -- either a financial subsidiary or a bank holding company affiliate;
• Regulate banking, securities, and insurance activities along functional lines, with each activity overseen by the regulators that know them best;
• Protect the safety and soundness of our banking system by requiring that non-banking activities be conducted separately within an organization, subject to funding limitations; and
• Maintain the separation of banking and commercial activities, so that loans are made on merit, not relationship, avoiding risks that have caused trouble for some banking systems around the world.

PRESERVING AND STRENGTHENING THE COMMUNITY REINVESTMENT ACT

President Clinton insisted that the legislation not weaken CRA or allow banks with an unsatisfactory CRA record to take advantage of the new powers authorized.

• The bill establishes an important prospective principle: banking organizations seeking to conduct new non-banking activities, or to merge with or acquire a firm engaged in such activities, must demonstrate a satisfactory record of meeting the credit needs of all the communities that they serve.
• Each and every time a bank or holding company commences a new activity, such as securities, insurance underwriting, or merchant banking, or acquires a company in these new areas, all of its banks and thrifts must have a satisfactory CRA rating. Thousands of transactions involving securities activities and other non-banking activities, previously exempt from CRA, will now be covered.
• CRA continues to apply as it has to all banks and thrifts, without exception; existing procedures for public comment on applications to acquire or merge with banks or thrifts remain in effect.
• The CRA examination cycle for small banks and thrifts with outstanding or satisfactory ratings is extended, but the bill preserves the ability to regulators to examine at any time for reasonable cause or in connection with an application.
• Harmful exemptions from CRA were eliminated in conference, as was a provision that would have blocked community comments on most bank's CRA applications.
• To spur community investment, the bill also authorizes a new program, known as PRIME, to provide technical assistance to low- and moderate-income micro-entrepreneurs.

NEW FINANCIAL PRIVACY AND OTHER CONSUMER PROTECTIONS

Under current law, a financial institution can share with or sell to anyone, including telemarketers and nonfinancial firms, information on everything from account balances to credit card transactions, without a customer's knowledge or consent. On May 4th, President Clinton proposed strong and enforceable Federal privacy protections for consumers' financial information. The bill includes a number of these provisions.

• Financial institutions must clearly disclose their privacy polices up front and annually, allowing consumers to make informed choices about privacy protection. Consumers will know if their bank, insurance, or securities firm intends to share or sell their financial data, within the corporate family or to third parties.
• Consumers will be able to "opt-out" of information sharing with unaffiliated third parties.
• These restrictions have teeth. Regulators have full authority to enforce these protections and new rulemaking authority under existing Fair Credit Reporting Act requirements.
• New penalties are available to prevent pretext calling -- when someone uses trickery or impersonation to discover the consumer's financial assets.

These protections represent an important step forward, but they are not enough. Legislation that the President is signing today requires the Treasury to study the privacy practices of the financial services industry and recommend further legislative steps.

• President Clinton will today direct the National Economic Council to work with the Treasury and OMB to complete a legislative proposal by early next year. He is committed to ensuring that consumers have choices about how their financial information is shared between different affiliated companies.

The bill includes other important consumer protections.

• Banking agencies are directed to adopt consumer protections to govern bank sales of insurance products, including: clear and conspicuous disclosure that insurance is not FDIC-insured; prohibitions on tying credit to insurance products; and other protections against coercive sales practices. Consumer protections for bank sale of securities products are also strengthened.
• Important State consumer protection laws governing insurance sales are preserved.
• Banks are required to make full and conspicuous disclosure of fees on ATM machines.

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