The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, () is an
act of the
106th United States Congress
The 106th United States Congress was a meeting of the legislative branch of the United States federal government, composed of the United States Senate and the United States House of Representatives. It met in Washington, D.C., from January 3, 19 ...
(1999–2001). It repealed part of the
Glass–Steagall Act of 1933, removing barriers in the market among
bank
A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
ing companies,
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
companies, and
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
companies that prohibited any one institution from acting as any combination of an
investment bank, a
commercial bank
A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit.
It can also refer to a bank or a division of a larger bank that deals with whol ...
, and an
insurance company. With the passage of the
Gramm–
Leach–
Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. Furthermore, it failed to give to the SEC or any other financial regulatory agency the authority to regulate large investment bank holding companies. The legislation was signed into law by President
Bill Clinton
William Jefferson Clinton (né Blythe III; born August 19, 1946) is an American politician and lawyer who was the 42nd president of the United States from 1993 to 2001. A member of the Democratic Party (United States), Democratic Party, ...
.
A year before the law was passed,
Citicorp, a commercial bank
holding company
A holding company is a company whose primary business is holding a controlling interest in the Security (finance), securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own Share ...
, merged with the insurance company
Travelers Group in 1998 to form the conglomerate
Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included
Citibank,
Smith Barney,
Primerica, and
Travelers. Because this merger was a violation of the Glass–Steagall Act and the
Bank Holding Company Act of 1956, the
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...
gave Citigroup a temporary waiver in September 1998.
Less than a year later, GLBA was passed to legalize these types of mergers on a permanent basis. The law also repealed Glass–Steagall's conflict of interest prohibitions "against simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank."
Legislative history
The banking industry had been seeking the repeal of the 1933 Glass–Steagall Act since the 1980s, if not earlier. In 1987 the
Congressional Research Service
The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a ...
prepared a report that explored the cases for and against preserving the Glass–Steagall Act.
Respective versions of the Financial Services Act were introduced in the
U.S. Senate by
Phil Gramm
William Philip Gramm (born July 8, 1942) is an American economist and politician who represented Texas in both chambers of United States Congress, Congress. Though he began his political career as a Democratic Party (United States), Democrat, Gr ...
(
Republican of Texas) and in the
U.S. House of Representatives by
Jim Leach (R-Iowa). The third lawmaker associated with the bill was Rep.
Thomas J. Bliley, Jr. (R-Virginia), Chairman of the
House Commerce Committee from 1995 to 2001.
During debate in the
House of Representatives
House of Representatives is the name of legislative bodies in many countries and sub-national entities. In many countries, the House of Representatives is the lower house of a bicameral legislature, with the corresponding upper house often ...
, Rep.
John Dingell (
Democrat of Michigan) argued that the bill would result in banks becoming "too big to fail." Dingell further argued that this would necessarily result in a bailout by the Federal Government.
The House passed its version of the ''Financial Services Act of 1999'' on July 1, 1999, by a bipartisan vote of 343–86 (Republicans 205–16; Democrats 138–69;
Independent 0–1),
[H.R.10: Financial Services Act of 1999, ''EH''](_blank)
, July 1, 1999, ''Engrossed as Agreed to or Passed by House'', Library of Congress
The Library of Congress (LOC) is a research library in Washington, D.C., serving as the library and research service for the United States Congress and the ''de facto'' national library of the United States. It also administers Copyright law o ...
[Consideration of H.R.10: Financial Services Act of 1999](_blank)
, ''All Congressional Actions & Reports of H.R.10'', '' Congressional Record'' two months after the Senate had already passed its version of the bill on May 6 by a much narrower 54–44 vote along basically partisan lines (53 Republicans and 1 Democrat in favor; 44 Democrats opposed).
[S.900: Financial Services Modernization Act of 1999, ''ES''](_blank)
, May 6, 1999, ''Engrossed as Agreed to or Passed by Senate'', Library of Congress[Consideration of S.900: Financial Services Modernization Act of 1999](_blank)
, ''All Congressional Actions & Reports of S.900'', ''Congressional Record''[Congressional roll-call a]
S.900 as amended: Financial Services Modernization Act of 1999, Record Vote No: 105
, May 6, 1999, U.S. Senate Roll Call Votes.[Sen. Fritz Hollings (D-S. Carolina) voted in favor, Sen. Peter Fitzgerald (R-Illinois) voted "present" and Sen. James Inhofe (R-Oklahoma) did not vote. A table with members' full names, sortable by vote, state, region and party, may be found at S.900 as amended: Gramm–Leach–Bliley Act, roll call 105, 106th Congress, 1st session. Votes Database at '']The Washington Post
''The Washington Post'', locally known as ''The'' ''Post'' and, informally, ''WaPo'' or ''WP'', is an American daily newspaper published in Washington, D.C., the national capital. It is the most widely circulated newspaper in the Washington m ...
''. Retrieved on 2008-10-09 from .
When the two chambers could not agree on a joint version of the bill, the House voted on July 30 by a vote of 241–132 (R 58–131; D 182–1; Ind. 1–0) to instruct its negotiators to work for a law which ensured that consumers enjoyed medical and financial privacy as well as "robust competition and equal and non-discriminatory access to financial services and economic opportunities in their communities" (i.e., protection against exclusionary
redlining
Redlining is a Discrimination, discriminatory practice in which financial services are withheld from neighborhoods that have significant numbers of Race (human categorization), racial and Ethnic group, ethnic minorities. Redlining has been mos ...
).
The bill then moved to a joint
conference committee to work out the differences between the Senate and House versions. Democrats agreed to support the bill after Republicans agreed to strengthen provisions of the anti-redlining
Community Reinvestment Act and address certain privacy concerns; the conference committee then finished its work by the beginning of November.
["Republicans' Revised Banking Bill Greeted With Veto Promise"](_blank)
Washington Post, October 13, 1999, p.E03
Cincotta, National Housing Institute, 1999 On November 4, the final bill resolving the differences was passed by the Senate 90–8,
[Congressional roll-call]
S.900 as reported by conferees: Financial Services Act of 1999, Record Vote No: 354
, November 4, 1999, Clerk of the Senate. Sortable unofficial table
On Agreeing to the Conference Report, S.900 Gramm–Bliley–Leach Act, roll call 354, 106th Congress, 1st session
Votes Database at ''The Washington Post
''The Washington Post'', locally known as ''The'' ''Post'' and, informally, ''WaPo'' or ''WP'', is an American daily newspaper published in Washington, D.C., the national capital. It is the most widely circulated newspaper in the Washington m ...
'', retrieved on October 9, 2008[52 Republicans and 38 Democrats voted for the bill. Sen. Richard Shelby of Alabama (Republican, formerly a Democrat) voted against it, as did 7 Democratic Senators: ]Barbara Boxer
Barbara Sue Boxer (née Levy; born November 11, 1940) is a retired American politician, lobbyist, and former reporter who served in the United States Senate, representing California from 1993 to 2017. A member of the Democratic Party (United St ...
(Calif.), Richard Bryan (Nevada), Byron Dorgan (N. Dakota), Russell Feingold (Wisc.), Tom Harkin (Iowa), Barbara Mikulski (Maryland) and Paul Wellstone (Minn.) Sen. Peter Fitzgerald (R-Illinois) again voted "present", while Sen. John McCain
John Sidney McCain III (August 29, 1936 – August 25, 2018) was an American statesman and United States Navy, naval officer who represented the Arizona, state of Arizona in United States Congress, Congress for over 35 years, first as ...
(R-Arizona) did not vote. and by the House 362–57.
[Congressional roll-call]
On the passage of S.900: Financial Services Act of 1999, Record Vote No: 570
, November 4, 1999, Clerk of the U.S. House. Sortable unofficial table
On Agreeing to the Conference Report, S. 900 Financial Services Modernization Act, roll call 570, 106th Congress, 1st session
Votes Database at ''The Washington Post
''The Washington Post'', locally known as ''The'' ''Post'' and, informally, ''WaPo'' or ''WP'', is an American daily newspaper published in Washington, D.C., the national capital. It is the most widely circulated newspaper in the Washington m ...
'', retrieved on October 9, 2008[Republicans voted 207–5 in favor with 10 not voting. Democrats voted 155–51 in favor, with 5 not voting. Independent Rep. ]Bernie Sanders
Bernard Sanders (born September8, 1941) is an American politician and activist who is the Seniority in the United States Senate, senior United States Senate, United States senator from the state of Vermont. He is the longest-serving independ ...
of Vermont voted no. The legislation was signed into law by President
Bill Clinton
William Jefferson Clinton (né Blythe III; born August 19, 1946) is an American politician and lawyer who was the 42nd president of the United States from 1993 to 2001. A member of the Democratic Party (United States), Democratic Party, ...
on November 12, 1999.
Changes caused by the Act
Many of the largest banks, brokerages, and insurance companies desired the Act at the time. The justification was that individuals usually put more money into investments when the economy is doing well, but they put most of their money into
savings account
A savings account is a bank account at a retail banking, retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditi ...
s when the economy turns bad. With the new Act, they would be able to do both 'savings' and 'investment' at the same financial institution, which would be able to do well in both good and bad economic times.
Prior to the Act, most financial services companies were already offering both saving and investment opportunities to their customers. On the retail/consumer side, a bank called
Norwest Corporation, which would later merge with
Wells Fargo Bank, led the charge in offering all types of financial services products in 1986.
American Express
American Express Company or Amex is an American bank holding company and multinational financial services corporation that specializes in payment card industry, payment cards. It is headquartered at 200 Vesey Street, also known as American Expr ...
attempted to own participants in almost every field of financial business (although there was little
synergy
Synergy is an interaction or cooperation giving rise to a whole that is greater than the simple sum of its parts (i.e., a non-linear addition of force, energy, or effect). The term ''synergy'' comes from the Attic Greek word συνεργία ' f ...
among them). Things culminated in 1998 when Citibank merged with
The Travelers Companies
The Travelers Companies, Inc., commonly known as Travelers, is an American multinational insurance company. It is the second-largest writer of U.S. commercial property casualty insurance, and the sixth-largest writer of U.S. personal insurance t ...
, creating
Citigroup. The merger violated the
Bank Holding Company Act (BHCA), but Citibank was given a two-year forbearance that was based on an assumption that they would be able to force a change in the law. The Gramm–Leach–Bliley Act passed in November 1999, repealing portions of the BHCA and the Glass–Steagall Act, allowing banks, brokerages, and insurance companies to merge, thus making the CitiCorp/Travelers Group merger legal.
Also prior to the passage of the Act, there were many relaxations to the ''Glass–Steagall Act''. For example, a few years earlier, commercial Banks were allowed to pursue investment banking, and before that banks were also allowed to begin stock and insurance brokerage. Insurance underwriting was the only main operation they weren't allowed to do, something rarely done by banks even after the passage of the Act. The Act further enacted three provisions that allow for bank holding companies to engage in physical commodity activities. Prior to the enactment of the Act those activities were limited to those that were so closely related to banking to be considered incidental to it. Under GLBA depending on the provision the institution falls into, bank holding companies can engage in physical commodity trading, energy tolling, energy management services, and merchant banking activities.
Much consolidation occurred in the financial services industry since, but not at the scale some had expected. Retail banks, for example, do not tend to buy insurance underwriters, as they seek to engage in a more profitable business of insurance brokerage by selling products of other insurance companies. Other retail banks were slow to market investments and insurance products and package those products in a convincing way. Brokerage companies had a hard time getting into banking, because they do not have a large branch and
backshop footprint. Banks have recently tended to buy other banks, such as the 2004
Bank of America
The Bank of America Corporation (Bank of America) (often abbreviated BofA or BoA) is an American multinational investment banking, investment bank and financial services holding company headquartered at the Bank of America Corporate Center in ...
and
Fleet Boston merger, yet they have had less success integrating with investment and insurance companies. Many banks have expanded into
investment banking
Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by und ...
, but have found it hard to package it with their banking services, without resorting to questionable tie-ins which caused scandals at
Smith Barney.
Remaining restrictions
Crucial to the passing of this Act was an amendment made to the GLBA, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory rating at its most recent CRA exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the
Community Reinvestment Act (CRA).
[Community Reinvestment Act Amendments in the Gramm–Leach Act](_blank)
, additional text. This was an issue of hot contention, and the Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements."
GLBA also did not remove the restrictions on banks placed by the
Bank Holding Company Act of 1956 which prevented financial institutions from owning non-financial corporations. It conversely prohibits corporations outside of the banking or finance industry from entering retail and/or commercial banking. Many assume
Wal-Mart
Walmart Inc. (; formerly Wal-Mart Stores, Inc.) is an American multinational retail corporation that operates a chain of hypermarkets (also called supercenters), discount department stores, and grocery stores in the United States and 23 other ...
's desire to convert its industrial bank to a commercial/retail bank ultimately drove the banking industry to back the GLBA restrictions.
Some restrictions remain to provide some amount of separation between the investment and commercial banking operations of a company. For example,
licensed bankers must have separate business cards, e.g., "Personal Banker, Wells Fargo Bank" and "Investment Consultant, Wells Fargo Private Client Services". Much of the debate about
financial privacy is specifically centered around allowing or preventing the banking, brokerage, and insurances divisions of a company from working together.
In terms of
compliance, the key rules under the Act include ''The Financial Privacy Rule'' which governs the collection and disclosure of customers' personal financial information by financial institutions. It also applies to companies, regardless of whether they are financial institutions, that receive such information. ''The Safeguards Rule'' requires all financial institutions to design, implement and maintain safeguards to protect customer information. The Safeguards Rule applies not only to financial institutions that collect information from their own customers, but also to financial institutions – such as credit reporting agencies, appraisers, and mortgage brokers – that receive customer information from other financial institutions.
Privacy
* GLBA compliance is mandatory; whether a financial institution discloses nonpublic information or not, there must be a policy in place to protect the information from foreseeable threats in security and data integrity.
* Major components put into place to govern the collection, disclosure, and protection of consumers' nonpublic personal information; or personally identifiable information include:
**
Financial Privacy Rule
**
Safeguards Rule
**
Pretexting Protection
Financial Privacy Rule
(Subtitle A: Disclosure of Nonpublic Personal Information, codified at )
The Financial Privacy Rule requires financial institutions to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter. The privacy notice must explain the information collected about the consumer, where that information is shared, how that information is used, and how that information is protected. The notice must also identify the consumer's right to opt out of the information being shared with unaffiliated parties pursuant to the provisions of the
Fair Credit Reporting Act. Should the privacy policy change at any point in time, the consumer must be notified again for acceptance. Each time the privacy notice is reestablished, the consumer has the right to opt out again. The unaffiliated parties receiving the nonpublic information are held to the acceptance terms of the consumer under the original relationship agreement. In summary, the financial privacy rule provides for a
privacy policy agreement between the company and the consumer pertaining to the protection of the consumer's personal nonpublic information.
On November 17, 2009, eight federal regulatory agencies released the final version of
model privacy notice formto make it easier for consumers to understand how financial institutions collect and share information about consumers.
Financial institutions
GLBA defines financial institutions as: "companies that offer financial products or services to individuals, like loans, financial or investment advice, or insurance". The
Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) United States antitrust law, antitrust law and the promotion of consumer protection. It ...
(FTC) has jurisdiction over financial institutions similar to, and including, these:
* Non-bank mortgage lenders,
* Real estate appraisers,
* Loan brokers,
* Some financial or investment advisers,
* Debt collectors,
* Tax return preparers,
* Banks, and
* Real estate settlement service providers.
These companies must also be considered significantly engaged in the financial service or production that defines them as a "financial institution".
Insurance has jurisdiction first by the state, provided the state law at minimum complies with the GLB. State law can require greater compliance, but not less than what is otherwise required by the GLB.
Consumer vs. customer defined
The ''Gramm–Leach–Bliley Act'' defines a "consumer" as
:"an individual who obtains, from a financial institution, financial products or services which are to be used primarily for personal, family, or household purposes, and also means the legal representative of such an individual." (See .)
A customer is a consumer that has developed a relationship with privacy rights protected under the ''GLB''. A customer is not someone using an automated teller machine (ATM) or having a check cashed at a cash advance business. These are not ongoing relationships like a customer might have—i.e., a
mortgage loan
A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners t ...
, tax advising, or credit financing. A business is not an individual with personal nonpublic information, so a business cannot be a customer under the ''GLB''. A business, however, may be liable for compliance to the ''GLB'' depending upon the type of business and the activities utilizing individual's personal nonpublic information.
Consumer/client privacy rights
Under the ''GLB'', financial institutions must provide their clients a privacy notice that explains what information the company gathers about the client, where this information is shared, and how the company safeguards that information. This privacy notice must be given to the client prior to entering into an agreement to do business. There are exceptions to this when the client accepts a delayed receipt of the notice in order to complete a transaction on a timely basis. This has been somewhat mitigated due to online acknowledgement agreements requiring the client to read or scroll through the notice and check a box to accept terms.
The privacy notice must also explain to the customer the opportunity to 'opt out'. Opting out means that the client can say "no" to allowing their information to be shared with nonaffiliated third parties. The ''
Fair Credit Reporting Act'' is responsible for the 'opt-out' opportunity, but the privacy notice must inform the customer of this right under the GLB. The client cannot opt out of:
* Information shared with those providing priority service to the financial institution
* Marketing of products or services for the financial institution
* When the information is deemed legally required.
* When entering into a financial transaction, the institution providing said transaction must provide the customer a secure room with the ability to close in order to better protect the clients personal information.
Receipt of GLBA notices by consumers
= ¶ Service of notice requirements
=
Notice requirements may vary. In most cases, service of a GLBA notice is not necessary unless the entity serving the notice intends to "share" customer information, which the FTC defines as, "non-public personal information (NPI)", of customers required to be protected under ''GLBA''.
=¶ Response to receipt of a GLBA notice
=
A consumer may react to service of a ''GLBA'' notice by:
* Not responding
* Indicating, on an acknowledgment form that notice was not provided (typically for in-person signed documents)
* Responding according to format suggested in the GLBA Notice
* Responding with a prepared letter (alone or in addition to the form)
Synergy between GLBA and GDPR
The
European Union's General Data Protection Regulation (GDPR) became enforceable on 25 May 2018. As applies to consumers, the
GDPR includes provision on scope of data collection, but also includes
right of access,
right to erasure, right to restriction of processing and right to data portability. Due to the multinational nature of some transactions, including data and internet transactions, and the possible implementation of corresponding regulations in some US states, it is likely that business and other entities will comply with the
GDPR as well as US ''GLBA'' requirements.
Individualized requests for privacy under the ''GLBA'' are likely to include provisions guaranteed by the
European Union
The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
's
GDPR.
Safeguards Rule
(Subtitle A: Disclosure of Nonpublic Personal Information, codified at )
The Safeguards Rule implements data security requirements from the GLBA and requires financial institutions to develop a written information security plan that describes how the company is prepared for, and plans to continue to protect its clients' nonpublic personal information. The Safeguards Rule applies to information of any consumer's past or present regarding the financial institution's products or services. The written plan must include:
* Denoting at least one employee to manage the safeguards
* Constructing a thorough
risk analysis
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...
on each department handling the nonpublic information
* Develop, monitor, and test a program to secure the information
* Adapting the safeguards as needed with contemporary changes in how information is collected, stored, and used
The Safeguards Rule forces financial institutions to take a closer look at how they manage private data and to do a risk analysis on their current processes. The Federal Register features approaches for risk assessments such as evaluating the likelihood of magnitudes of harm that result from threats and errors and safeguards are commensurate with the risks they address. No process is perfect, so this has meant that every financial institution has had to make some effort to comply with the ''GLBA''.
In December 2021, the Safeguards Rule was updated, amid some controversy,
[ by the FTC to include specific criteria requiring financial institutions to introduce new security controls and to increase the accountability of ]boards of directors
A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency.
The powers, duties, and responsibilities of a board of directors are determined by government regulations ...
, with a six-month compliance extension, from January to June 2023, granted for some types of institutions in November 2022.["FTC Delays Safeguards Rule Implementation for Certain Financial Institutions"]
Mercedes Kelley Tunstall '' The National Law Review'' Volume XII, Number 331, November 23, 2022. Retrieved November 30, 2022.
Pretexting protection
(Subtitle B: Fraudulent Access to Financial Information, codified at )
Pretexting (sometimes referred to as "social engineering") occurs when someone tries to gain access to personal nonpublic information without proper authority to do so. This may entail requesting private information while impersonating the account holder, by telephone, by mail, by e-mail, or even by " phishing" (i.e., using a phony website or email to collect data). GLBA encourages the organizations covered by GLBA to implement safeguards against pretexting. For example, a well-written plan designed to meet GLB's Safeguards Rule ("develop, monitor, and test a program to secure the information") would likely include a section on training employees to recognize and deflect inquiries made under pretext. In fact, the evaluation of the effectiveness of such employee training probably should include a follow-up program of random spot checks, "outside the classroom", after completion of the nitialemployee training, in order to check on the resistance of a given (randomly chosen) student to various types of "social engineering"—perhaps even designed to focus attention on any new wrinkle that might have arisen ''after'' the nitialeffort to "develop" the curriculum for such employee training. Under United States law, pretexting by individuals is punishable as a common law
Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
crime of false pretenses.
Effect on usury law
Section 731 of the GLB, codified as subsection (f) of , contains a unique provision aimed at Arkansas
Arkansas ( ) is a landlocked state in the West South Central region of the Southern United States. It borders Missouri to the north, Tennessee and Mississippi to the east, Louisiana to the south, Texas to the southwest, and Oklahoma ...
, whose usury
Usury () is the practice of making loans that are seen as unfairly enriching the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is charged in e ...
limit was set at five percent above the Federal Reserve discount rate by the Arkansas Constitution and could not be changed by the Arkansas General Assembly. When the Office of the Comptroller of the Currency ruled that interstate banks established under the Riegle–Neal Interstate Banking and Branching Efficiency Act of 1994 could use their home state's usury law for all branches nationwide with minimal restrictions, Arkansas-based banks were placed at a severe competitive disadvantage to Arkansas branches of interstate banks; this led to out-of-state takeovers of several Arkansas banks, including the sale of First Commercial Bank (then Arkansas' largest bank) to Regions Financial Corporation in 1998.
Under Section 731, all banks headquartered in a state covered by that law may charge up to the highest usury limit of any state that is headquarters to an interstate bank which has branches in the covered state. Therefore, since Arkansas has branches of banks based in Alabama
Alabama ( ) is a U.S. state, state in the Southeastern United States, Southeastern and Deep South, Deep Southern regions of the United States. It borders Tennessee to the north, Georgia (U.S. state), Georgia to the east, Florida and the Gu ...
, Georgia
Georgia most commonly refers to:
* Georgia (country), a country in the South Caucasus
* Georgia (U.S. state), a state in the southeastern United States
Georgia may also refer to:
People and fictional characters
* Georgia (name), a list of pe ...
, Mississippi
Mississippi ( ) is a U.S. state, state in the Southeastern United States, Southeastern and Deep South regions of the United States. It borders Tennessee to the north, Alabama to the east, the Gulf of Mexico to the south, Louisiana to the s ...
, Missouri
Missouri (''see #Etymology and pronunciation, pronunciation'') is a U.S. state, state in the Midwestern United States, Midwestern region of the United States. Ranking List of U.S. states and territories by area, 21st in land area, it border ...
, North Carolina
North Carolina ( ) is a U.S. state, state in the Southeastern United States, Southeastern region of the United States. It is bordered by Virginia to the north, the Atlantic Ocean to the east, South Carolina to the south, Georgia (U.S. stat ...
, Ohio
Ohio ( ) is a U.S. state, state in the Midwestern United States, Midwestern region of the United States. It borders Lake Erie to the north, Pennsylvania to the east, West Virginia to the southeast, Kentucky to the southwest, Indiana to the ...
, and Texas
Texas ( , ; or ) is the most populous U.S. state, state in the South Central United States, South Central region of the United States. It borders Louisiana to the east, Arkansas to the northeast, Oklahoma to the north, New Mexico to the we ...
, any loan that is legal under the usury laws of any of those states may be made by an Arkansas-based bank under Section 731. The section does not apply to interstate banks with branches in the covered state, but headquartered elsewhere; however, Arkansas-based interstate banks like Arvest Bank may export their Section 731 limits to other states.
Due to Section 731, it is generally regarded that Arkansas-based banks now have no usury limit for credit cards or for any loan of greater than $2,000 (since Alabama, Regions' home state, has no limits on those loans), with a limit of 18% (the minimum usury limit in Texas) or more on all other loans. However, once Wells Fargo
Wells Fargo & Company is an American multinational financial services company with a significant global presence. The company operates in 35 countries and serves over 70 million customers worldwide. It is a systemically important fi ...
fully completed its purchase of Century Bank (a Texas bank with Arkansas branches), Section 731 did away with all usury limits for Arkansas-based banks since Wells Fargo's main bank charter is based in South Dakota
South Dakota (; Sioux language, Sioux: , ) is a U.S. state, state in the West North Central states, North Central region of the United States. It is also part of the Great Plains. South Dakota is named after the Dakota people, Dakota Sioux ...
, which repealed its usury laws many years ago.
Though designed for Arkansas, Section 731 may also apply to Alaska
Alaska ( ) is a non-contiguous U.S. state on the northwest extremity of North America. Part of the Western United States region, it is one of the two non-contiguous U.S. states, alongside Hawaii. Alaska is also considered to be the north ...
and California
California () is a U.S. state, state in the Western United States that lies on the West Coast of the United States, Pacific Coast. It borders Oregon to the north, Nevada and Arizona to the east, and shares Mexico–United States border, an ...
whose constitutions provide for the same basic usury limit, though unlike Arkansas their legislatures can (and generally do) set different limits. If Section 731 applies to those states, then all their usury limits are inapplicable to banks based in those states, since Wells Fargo has branches in both states.
Reception
Defenses
According to a 2009 policy report from the Cato Institute
The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch ...
authored by one of the institute's directors, Mark A. Calabria, critics of the legislation feared that, with the allowance for mergers between investment and commercial banks, GLBA allowed the newly-merged banks to take on riskier investments while at the same time removing any requirements to maintain enough equity, exposing the assets of its banking customers. Calabria claimed that, prior to the passage of GLBA in 1999, investment banks were already capable of holding and trading the very financial assets claimed to be the cause of the mortgage crisis, and were also already able to keep their books as they had. He concluded that greater access to investment capital as many investment banks went public on the market explains the shift in their holdings to trading portfolios. Calabria noted that after GLBA passed, most investment banks did not merge with depository commercial banks, and that in fact, the few banks that did merge weathered the crisis better than those that did not.
In February 2009, one of the act's co-authors, former Senator Phil Gramm, also defended his bill:
Bill Clinton
William Jefferson Clinton (né Blythe III; born August 19, 1946) is an American politician and lawyer who was the 42nd president of the United States from 1993 to 2001. A member of the Democratic Party (United States), Democratic Party, ...
, as well as economists Brad DeLong and Tyler Cowen have all argued that the Gramm–Leach–Bliley Act softened the impact of the crisis. '' Atlantic Monthly'' columnist Megan McArdle has argued that if the act was "part of the problem, it would be the commercial banks, not the investment banks, that were in trouble" and repeal would not have helped the situation. An article in the conservative
Conservatism is a cultural, social, and political philosophy and ideology that seeks to promote and preserve traditional institutions, customs, and values. The central tenets of conservatism may vary in relation to the culture and civiliza ...
publication ''National Review
''National Review'' is an American conservative editorial magazine, focusing on news and commentary pieces on political, social, and cultural affairs. The magazine was founded by William F. Buckley Jr. in 1955. Its editor-in-chief is Rich L ...
'' has made the same argument, calling allegations about the Act " folk economics." A ''New York Times
''The New York Times'' (''NYT'') is an American daily newspaper based in New York City. ''The New York Times'' covers domestic, national, and international news, and publishes opinion pieces, investigative reports, and reviews. As one of ...
'' financial columnist and occasional critic of GLBA Andrew Ross Sorkin stated that he believes GLBA had little to do with the failed institutions.
Criticisms
The act is often cited as a cause of the 2007 subprime mortgage financial crisis "even by some of its onetime supporters." Former President Barack Obama has stated that GLBA led to deregulation that, among other things, allowed for the creation of giant financial supermarkets that could own investment banks, commercial banks and insurance firms, something banned since the Great Depression. Its passage, critics also say, cleared the way for companies that were too big and intertwined to fail.
Economist Joseph Stiglitz has also argued that the Act increased risk-taking leading up to the crisis, stating "the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality". In an article in ''The Nation
''The Nation'' is a progressive American monthly magazine that covers political and cultural news, opinion, and analysis. It was founded on July 6, 1865, as a successor to William Lloyd Garrison's '' The Liberator'', an abolitionist newspaper ...
'', Mark Sumner asserted that the Gramm–Leach–Bliley Act was responsible for the creation of entities that took on more risk due to their being considered "too big to fail
"Too big to fail" (TBTF) is a theory in banking and finance that asserts that certain corporations, particularly financial institutions, are so large and so interconnected with an economy that their failure would be disastrous to the greater e ...
".Sumner, Mark – John McCain: Crisis Enabler
. ''The Nation
''The Nation'' is a progressive American monthly magazine that covers political and cultural news, opinion, and analysis. It was founded on July 6, 1865, as a successor to William Lloyd Garrison's '' The Liberator'', an abolitionist newspaper ...
''. September 21, 2008.
Amendments
Proposed
*
National Association of Registered Agents and Brokers Reform Act of 2013 (H.R. 1155; 113th Congress) () is a bill meant to reduce the regulatory costs of complying with multiple states' requirements for insurance companies, making it easier for the same company to operate in multiple states.
The bill would amend the Gramm–Leach–Bliley Act to repeal the contingent conditions under which the National Association of Registered Agents and Brokers (NARAB) shall not be established.
The bill would transform the National Association of Registered Agents and Brokers (NARAB) into a clearing house that set up its own standards that insurance companies would be required to meet in order to do business in other states.
In this new system, however, the insurance company would only have to meet the requirements of their home state and the NARAB (only two entities), not their home state and every other state they wished to operate in (multiple entities).
Proponents of the bill argued that it would help lower costs for insurance companies and make insurance cheaper for people to buy.
See also
*
Bank regulation
*
Securities regulation in the United States
Securities regulation in the United States is the field of Law of the United States, U.S. law that covers transactions and other dealings with Security (finance), securities. The term is usually understood to include both federal and state-level r ...
*
Commodity Futures Trading Commission
The Commodity Futures Trading Commission (CFTC) is an Independent agencies of the United States government, independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures contract, fut ...
*
Securities commission
A securities commission, securities regulator or capital market authority is a government department or agency responsible for financial regulation of securities products within a particular country. Its powers and responsibilities vary greatly ...
*
Chicago Stock Exchange
*
Financial regulation
Financial regulation is a broad set of policies that apply to the financial sector in most jurisdictions, justified by two main features of finance: systemic risk, which implies that the failure of financial firms involves public interest consi ...
*
Financial privacy laws in the United States
*
''Inside Job'' (2010 documentary film)
*
List of financial regulatory authorities by country
*
NASDAQ
The Nasdaq Stock Market (; National Association of Securities Dealers Automated Quotations) is an American stock exchange based in New York City. It is the most active stock trading venue in the U.S. by volume, and ranked second on the list ...
*
New York Stock Exchange
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...
*
Stock exchange
A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...
*
Regulation D (SEC)
In the United States under the Securities Act of 1933, any offer to sell securities must either be registered with the United States Securities and Exchange Commission (SEC) or meet certain qualifications to exempt them from such registration. Re ...
;Related legislation
* 1933 –
Securities Act of 1933
The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and afte ...
* 1933 –
Banking Act of 1933, which contained legislation repealed by Gramm–Leach–Bliley
* 1934 –
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A land ...
* 1938 –
Temporary National Economic Committee (establishment)
* 1939 –
Trust Indenture Act of 1939
* 1940 –
Investment Advisers Act of 1940
* 1940 –
Investment Company Act of 1940
The Investment Company Act of 1940 (commonly referred to as the '40 Act) is an act of Congress which regulates investment funds. It was passed as a United States Act of Congress, Public Law () on August 22, 1940, and is codified at . Along with th ...
* 1968 –
Williams Act (Securities Disclosure Act)
* 1975 –
Securities and Exchange Act
* 1982 –
Garn–St. Germain Depository Institutions Act
The Garn–St Germain Depository Institutions Act of 1982 (, , enacted October 15, 1982) is an Act of Congress that deregulation, deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage, adjustable-rate mor ...
* 2000 –
Commodity Futures Modernization Act of 2000
* 2002 –
Sarbanes–Oxley Act
The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations. The act, , also known as the "Public Company Accounting Reform and Investor Protectio ...
* 2003 –
Fair and Accurate Credit Transactions Act of 2003
* 2006 –
Credit Rating Agency Reform Act of 2006
* 2010 –
Dodd–Frank Wall Street Reform and Consumer Protection Act
Notes
References
Sources
*
Financial Privacy: The Gramm–Leach–Bliley Act Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) United States antitrust law, antitrust law and the promotion of consumer protection. It ...
, 1999
Gramm–Leach–Bliley Act,15 USC, Subchapter I, Sec. 6801–6809, Disclosure of Nonpublic Personal Information FTC, 1999
*Mike Chapple
November 18, 2003
*Robert H. Ledig
*
ttp://www.ftc.gov/privacy/privacyinitiatives/financial_rule.html The Gramm–Leach–Bliley Act: The Financial Privacy Rule Federal Trade Commission
In Brief: The Financial Privacy Requirements of the Gramm–Leach–Bliley Act, Federal Trade Commission
The Gramm–Leach–Bliley Act — "History of the GLBA" Electronic Privacy Information Center
The Electronic Privacy Information Center (EPIC) is an independent nonprofit research center established in 1994 to protect privacy, freedom of expression, and democratic values in the information age. Based in Washington, D.C., their mission i ...
Financial Institution Privacy Protection Act of 2003 — 108th CONGRESS, 1st Session, S. 1458, "To amend the Gramm–Leach–Bliley Act to provide for enhanced protection of nonpublic personal information, including health information, and for other purposes.", In the Senate of the United States; July 25 (legislative day, JULY 21), 2003,
Library of Congress
The Library of Congress (LOC) is a research library in Washington, D.C., serving as the library and research service for the United States Congress and the ''de facto'' national library of the United States. It also administers Copyright law o ...
Testimony of (Federal Reserve) Governor Laurence H. Meyer: Merchant banking Federal Reserve Bank
* Martin McLaughlin
Clinton, Republicans agree to deregulation of US financial system World Socialist Web Site, November 1, 1999, retrieved on October 9, 2008
External links
Gramm–Leach–Bliley ActPDFdetails
as amended in the GPObr>Statute Compilations collection
Gramm–Leach–Bliley Act
as enacted in the US Statutes at Large
Compliance information
Gramm–Leach–Bliley Act, 15 USC, Subchapter I, Sec. 6801–6809 – Disclosure of Nonpublic Personal Information
Consumer/client rights information
What Can You Do To Protect Your Privacy
History of the GLB
History of the GLBA
Congressional voting records on Gramm–Leach–Bliley Act
Senate Vote #354 (Nov. 4, 1999) On the Conference Report (S.900 Conference Report)House Vote #570 (Nov. 4, 1999) On Agreeing to the Conference Report: S 900 (106th) Financial Services Modernization Act
{{DEFAULTSORT:Gramm-Leach-Bliley Act
United States federal banking legislation
United States federal privacy legislation
United States federal computing legislation
Acts of the 106th United States Congress
Separation of investment and retail banking
1999 in economic history
United States federal insurance legislation