Legislation that would make it easier for banks, brokerage firms and insurance companies to merge and cross-sell products and which consumer groups attacked as anti-competitive and a major threat to privacy, will not be passed this year. But, the Financial Services Modernization Act, which the Senate was expected not to act on before Congress adjourned, is likely to be revived next year.
"The new financial modernization legislation ... demolishes the wall that separates banks from securities and insurance, setting up the industry to get access to greater sources of fees and, at the same time, exposes taxpayers to more risk," the U.S. Public Interest Research Group, Ralph Nader, the Consumers Union and the Consumer Federation of America said in a recent joint statement. Consumer groups also say the consolidation of banks, insurers and securities firms would invite the sharing of information and leave few details of a consumer's life protected from the scrutiny of a conglomerate. They say huge financial services firms could share and sell information without a customer's knowledge or consent -- and possibly gain leverage over financially-strapped consumers.
"If you default on a loan or insurance policy, is a financial institution going to take the money out of your investment account?" said Mary Griffin, insurance counsel for the Consumers Union.
But, John Collins, a spokesperson for the Investment Company Institute, the mutual fund industry's trade association, doubts that financial services companies would be involved in mass sharing of information. "The business of managing information in the mutual fund industry has been very conservative," said Collins. "There's historically been a reluctance to share information."