New Bank Laws May Bring Big Changes
Added: (Sun Nov 21 1999)
Pressbox (Press Release) -
By MARCY GORDON
Walk into your local bank sometime in the near future and try to see the difference.
Tellers will still be there counting cash. Account executives will welcome new clients to sit at their desks. You will still fill out deposit slips with pens chained to glass-topped tables. And the security cameras will continue to capture every move you make.
But behind the scenes, things will be different. A law passed by Congress this month and eagerly signed by President Clinton has knocked down the walls separating banks, investment firms and insurance companies, allowing them into each other's businesses.
And the resulting new financial landscape will influence the way you bank, from ATM and online transactions to personal investments to your financial privacy -- or lack of it.
Depending on who's talking, the new law means greater choice and convenience for consumers with one-stop financial shopping and lower costs, or huge, cutthroat conglomerates gouging customers and jeopardizing their financial privacy.
The Treasury Department, for example, estimates it will save American consumers some $15 billion a year on fees and commissions for banking, brokerage and insurance services.
But Ralph Nader warns it will bring 'fewer choices, higher prices and greater risks for the taxpayers' if the government has to bail out big financial conglomerates that fail. His Exhibit A: recent government surveys showing that banks that merged with other banks generally charge higher fees than smaller banks.
Still, Consumers Union -- one of the groups that opposed the legislation -- predicts the new financial supermarkets will cater to people buying a wide array of products -- who could end up getting better deals and prices.
At the same time, even with these new financial products, banks may have a tough time attracting customers, said marketing consultant Charlene Stern.
Many banks "have been pushing their customers out the door" with ATM machines, online banking and 24-hour phone lines and "have really lost touch with how shoppers and customers are shopping and buying," said Ms. Stern, who advises banks through her firm in Berkeley, Calif.
The challenge for banks now is to get people back in, and not just to open a checking account, she said.
The stakes are high. By some reckonings, financial services are the third most frequently purchased item by American consumers, after food and gasoline. That translates to an estimated $350 billion a year in fees and commissions for banking, brokerage and insurance services.
The barriers between the financial services industries had been in place since the Great Depression -- when lawmakers feared another stock market crash like that of October 1929. They wanted to separate investment banking, with its greater penchant for risk, from commercial banking to prevent depositors' money from being lost in risky investments.
But the old protective barriers came to be viewed by many in the financial industries and Congress as shackles on innovation and U.S. competitiveness in an ever-converging world marketplace.
In some ways, the new kind of financial merger may have already taken place before the law was enacted: the $1.8 billion marriage this year between online brokerage ETrade Group Inc. and Internet banker Telebanc Financial Corp [NasdaqNM:TBFC - news]. As a result, stock trading, mortgage applications, bill paying and more all are found on the same Web site.
And in the near future, with combinations of conventional financial companies, all those services may even be available through an ATM machine.
Consumers' rights, especially to privacy, also are redefined in the new banking era.
To protect consumers, salespeople at the bank are required by the new law to make it clear that unlike bank deposits, securities investments and insurance are not federally insured.
Banks will also be prohibited from requiring customers to buy insurance or securities as a condition for getting a loan approved.
And with privacy a key issue, consumers for the first time will have the right to stop the newly affiliated banks, investment firms and insurers from sharing their personal financial data with firms outside the corporate group, such as telemarketers.
But be advised: There are exceptions to that right when, for example, the telemarketer or other outside firm has an agreement with a bank in the group to market the bank's own products.
And the affiliated financial companies are entitled to share customers' personal data with each other. That's a key reason they wanted to be able to merge -- to help them find potential customers for new products in their marketing campaigns.
That change raised a firestorm of protest by consumer groups and privacy advocates.
The president of the American Bankers Association, in a speech last Monday, felt it necessary to call on bankers across the country "to make privacy their top priority."