March 2000 Newsletter

Your Money Matters

Why you won't like the new banking law

By Robert K. Heady, Your Money contributing editor and founding president of Bank Rate Monitor.

Better batten down the hatches. Your personal financial life is about to become one big, complicated, confusing jungle because of a new federal law passed last November.

After 5 years of intensive lobbying by banks, securities firms, and insurance companies, the government is allowing these institutions to get into each other's businesses. This means you'll undoubtedly see a slew of giant financial mergers beginning in late spring. Risky Investments Inc. might buy Friendly Federal Bank and tempt you with uninsured stocks when you go in to buy an FDIC-insured CD. Friendly Federal Bank will be able to check your health records at its Ace Insurance Co. affiliate when it reviews your loan application. Plus, all three outfits will have access to your most personal data, including your name, address, phone number, salary, account balance, and credit history.

Scary? You bet.

The Financial Services Modernization Act, as the law is called, has been blasted by consumer advocates as pushing the United States back to the late 1920s, when there was no separation between risky investment banking and bank accounts that protected the consumer's money. That set off a stock-buying frenzy that culminated in the crash of 1929. Then, for years after, the Glass-Steagall Act separated the nation's financial services-until now.

Why the new banking reform law? Banks' share of consumer assets has fallen sharply from 40% in 1980 to only 25% last year. The banking industry promises that the law will create more competition, offer one-stop shopping convenience, lead to lower prices, and save consumers $15 billion a year in fees.

Not so, say consumer activists. They argue that the average person will have fewer choices and actually pay higher fees-just as the nation's biggest banks today charge higher fees than smaller institutions. They fear people will be denied credit or insurance because of the way the big new conglomerates will share customers' financial data. And with securities and bank accounts under the same roof, consumers may be touted into buying risky investments that aren't safe.

The new law is a disaster to the average American's personal privacy, according to many experts and several congressmen who fought the bill unsuccessfully. Sen. Paul Wellstone (D.-Minn.) termed it "bad legislation that we as a nation will soon regret." One thing is for sure: The law is fraught with complexities and loopholes that favor the financial interests, not the consumer. Here's some of what you're up against, in a nutshell:

• Banks, securities firms, and insurance companies that are part of the same corporate structure can share any of your personal financial data with each other. And you won't be able to stop them from doing it.
• They'll be able to sell or share your personal data with any outside company with which they have a marketing contract, such as telemarketers and magazine-subscription organizations.
• They'll be able to sell or share the data with outside companies that market financial products. (For instance, a small bank can sell your account information to an insurance company.) But you can "opt out" of allowing them to sell or share the information with other companies that don't sell financial products. It's an inconvenient step, but be sure to send the conglomerate a letter stating that you don't want your records sold or shared in any way, and keep a copy.
• XYZ Department Store may have its own credit card issued by Friendly Federal Bank. The bank can tell XYZ about the products you've been buying with your card. So don't be surprised if you get a phone call from XYZ saying it's offering a big discount on the same merchandise you've been charging elsewhere.

The new law left some leeway on privacy up to the individual states. If you're concerned, consider calling or writing your state legislators, urging them to enact privacy protection for your state.

Your Money, February/March 2000

Surviving the Tax Crunch
International Trade Association Offers Tips for Tax Time

It's that time of year again. Americans are filling out forms, meeting with accountants and trying to figure out how to save that extra dollar and ease the financial burden of their yearly taxes.

"Taxes are a fact of life for just about everyone in this country," said Jon Dunn, president of the American Collectors Association and owner of Diversified Account Systems of Georgia. "Although most people realize this, many do not often consider why it is important to pay their debt to the government on time."

Dunn said that when people avoid paying their taxes, they risk causing serious damage to their credit ratings. Without credit, consumers have decreased buying power, which can affect their quality of life and their buying power in the future. If people pay their taxes in a timely manner, they can avoid establishing poor credit ratings.

The US General Accounting Office estimates that the Internal Revenue Service is owed $110 billion in past-due taxes. Of this, $60 billion is considered collectible. In a 1994 study by the GAO, the use of third-party collection services by state governments boosted collection rates by as much as 45 percent. With the recent enactment of the Debt Collection Improvement Act of 1996, the use of private collectors in government collections is growing and is expected to increase federal recovery.

Copyright (c) 1999 American Collectors Association, Inc.

Healthcare Collection Statistics

• The federal government estimates that healthcare is a $1 trillion industry.
• The American Hospital Association estimates a total of 46 million people were without health insurance by the end of 1999.
• According to Families USA, the cost of healthcare for the average family will reach $9,397 by this year.
• The Healthcare Finance Administration estimates that by 2007, healthcare expenditures will reach 2.1 trillion.
• Approximately 77 percent of ACA member agencies collect past-due healthcare/medical accounts.

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