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New Law "Modernizes"
the Financial Services Industry
Eliminates legal
barriers separating banks from insurance and securities firms
As FDIC Consumer News
went to print, Congress approved and President Clinton signed a major
banking law changing the way financial services are offered to the public.
Here's a summary of key provisions of the "financial modernization"
law that are of interest to consumers:
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After decades
of debate, the lawmakers agreed to remove legal restrictions—some
dating back to the Depression era—on the authority of banks to affiliate
with insurance and securities companies. The new law will make it
easier for banking organizations to become "financial supermarkets"
that offer a wide range of products and services, in areas such as
insurance, stocks and mutual funds.
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Federal regulators
will be required to adopt consumer protection rules governing bank
sales of insurance. For example, these regulations must prohibit an
institution from misleading a consumer that an insurance product bought
at the bank is federally insured. (Only deposits at an insured
bank are eligible for FDIC insurance.) Also, a bank will be required
to disclose that it cannot condition the approval of a loan on the
consumer's purchase of insurance from that bank or one of its affiliates.
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All financial
institutions (including banks, thrifts, credit unions, insurance companies
and securities brokers) must describe their privacy policies to customers
when accounts are opened and at least once a year thereafter. The
new law addresses such issues as what the financial institution must
tell the customer about how it may share "nonpublic" personal
information with an affiliate or a third party. Also, with certain
exceptions, financial institutions must give their customers the chance
to "opt out" of the sharing of this kind of personal information
with nonaffiliated third parties. Details about the types of customer
information that can or cannot be shared, and related issues will
be finalized in rules from financial regulators.
- Automated teller
machine (ATM) operators will be required to disclose clearly, at the
machine, any user fees charged to non-customers and give them a chance
to cancel a transaction before incurring a fee.
The new law also makes
it a federal crime, punishable by up to five years in prison, for anyone
to use fraud or deception to learn account numbers or other personal information
from a financial institution. This provision of the law is aimed primarily
at "pretext calling," or situations when someone uses a false
identity to trick an institution or a customer into divulging personal
information.
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