FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon and thank you for inviting me to speak here today.

The reform of our nation's financial services laws is one of the major achievements of this Administration. Washington has struggled for over two decades to make these changes, and we are proud to have been part of this historic legislation. We now have a tremendous amount of work ahead of us to implement the provisions of the Act. We are working closely with our colleagues at the financial regulatory agencies to make the promise of fewer barriers, more consumer choice, lower costs, and better service a reality.

Even as we work to carry out the many mandates of the statute, new issues and challenges for the financial industry will continue to arise. As new technologies create significant opportunities, they also raise new challenges. This afternoon, I would like to discuss three issues facing the financial services industry that have been raised by new technologies - financial privacy, the use of electronic signatures and records, and computer security.

E-Commerce and the Financial Services Industry

As significant as financial modernization legislation has been for the financial services industry, something more dramatic is facing today's financial institutions. That is the rapid changes brought on by new technology, in particular by the Internet and electronic commerce.

There may be no part of our economy that is more suited to delivery over the Internet than financial services. Financial services and products are not physical goods. Investments, mortgages, consumer loans, deposits, bill payment, and insurance have no physical form. The stored value and risks they represent are best presented in charts, graphs, and words. The Internet can bring this data to consumers in the comfort of their home. Electronic commerce will most certainly reduce costs, improve efficiency, and increase competition. Consumers of financial services will benefit greatly.

But consumer confidence is critical to achieving the full promise of electronic commerce. E-commerce is still at an early stage of development. The large-scale computer attacks of the last two weeks highlight some of the uncertainties with its growth. In this environment, it is critical that both the government and industry take steps to foster consumer confidence.

The first challenge is to protect the privacy of consumers while preserving the benefits of competition and innovation brought about by technology.

Today's ordinary desktop computer is significantly more powerful than the mainframe of thirty years ago. Vast amounts of information can be stored, sorted, manipulated, and analyzed at lower and lower costs. At the same time, the increasing use of credit and debit cards and other electronic means of payments and receipts allows financial services companies to collect a far greater amount of information about its customers. Direct deposit now means that a bank knows not only what you spend, but also how much you earn, and from whom. These trends provide the means and opportunity for financial services firms to mine consumer information for profit.

Today, many Americans increasingly feel their privacy is threatened by those with whom they do business. Americans want the ability to earn, invest, and spend their money without having to expose their lives to those who process their transactions. Just as they would not expect a letter carrier to read their mail or record their correspondents, they do not expect a bank processing a check to record, store, and evaluate their personal behavior.

The question of consumer control over personal information will become more pressing as technological innovation continues. I encourage those of you who work with financial institutions to get out ahead of this issue. Indeed, some institutions already have.

If you have any doubt as to the resonance of this issue with consumers and with lawmakers, just look at how far the debate has moved in the last nine months. When the President outlined his "Financial Privacy and Consumer Protection in the 21st Century" initiative last May, many viewed the proposal as ambitious. Protecting financial privacy led the list of key principles for consumer protection.

The President's recommendations on financial privacy called for legislation providing consumers with notice and choice regarding the use of their financial data -- the right to say "no" to information sharing that they find inappropriate or invasive. Central to this is the idea that one's personal information is not the exclusive property of the institutions that hold it -- that people have a legitimate right to a say in how it is used and distributed.

Only six months later, we made significant progress on these goals in the financial modernization bill. We believe that the requirements for clearly stated privacy policies, for consumer notices and for the right to opt out of third-party information sharing are important advances in privacy protections for all Americans.

Treasury has been pleased to have had a role in the interagency development of privacy rules implementing this statute. This has been a major undertaking, with eight agencies working to issue consistent rules on one of the bill's most complicated and important issues. The timetable has been very tight, but there has been a high level of cooperation among all of those involved in the process. The agencies have taken a balanced approach that minimizes burdens on financial institutions, while providing very effective privacy protection consistent with the statute. The regulators are looking forward to receiving comments from you and, we expect, many others.

As important as the Act and the implementing rules are, this Administration believes that more can be done to protect personal financial privacy. The President has called on Treasury, working with other parts of the Administration, to develop legislation to enhance consumer privacy beyond existing law. These proposals are still in development. We are consulting with industry, consumer groups, and Congress to fulfill the President's mandate.

The additional consumer choice provided in the financial modernization bill was an important step in protecting financial privacy, but consumer choice for sharing with third parties should be a floor, not a ceiling. As the President has indicated, our new proposals will address information sharing within financial conglomerates. We are also looking at a range of other options, again with the desire to find balanced proposals that will both enhance privacy protection and allow financial institutions to provide quality services.

The Administration supports electronic commerce and has been working to promote its development wherever possible. As part of this effort, we need to make sure that our laws keep up with rapidly changing technologies and markets. The application of laws written before the Internet was even an idea can create uncertainty that is not in the interest of either business or consumers. The President has directed every federal agency to conduct a top-to-bottom review to find and eliminate policies, requirements, rules, and regulations that could be a barrier to the growth of electronic commerce. We also have asked the public for their ideas on the subject, and I encourage you to talk to us about your concerns.

At the same time, Congress, working with the Administration, is taking a critical step toward facilitating e-commerce through digital signature legislation. Two digital signature bills, S.761 and H.R.1714, passed their respective Houses last year, and appear to be on their way to conference.

The use of electronic signatures and records could revolutionize the way mortgage and consumer loans, financial accounts and investments, and retirement plans are provided to consumers. These bills would allow any contract that can be entered into in writing to be entered into electronically. We support this move to validate the use of electronic signatures and documents in place of paper.

In addition, the House version would allow for electronic delivery of a broad range of records, disclosures, and notices that are now provided in writing. This, too, could be a very important step forward. We must be careful, however, that as we take this step, we continue to provide the consumer protections that Congress and the states have previously enacted.

Consumer protection laws in the financial services area generally are designed to ensure that consumers are provided with the information they need to make sound financial decisions. They include the Truth-in-Lending Act, Real Estate Settlement Protection Act (RESPA), the Truth-in-Savings Act, the Consumer Leasing Act, and the Electronic Funds Transfer Act. Add to that the provisions of Employee Retirement Income Security Act (ERISA), federal securities laws and state law requirements concerning insurance contracts.

A good digital signature bill will ensure that consumer protections in the electronic world are equivalent to those in the paper world. A bill that promotes both electronic commerce and consumer protection is in everyone's interest. We believe that with some modest, common-sense changes, that goal is well within reach.

Many concerns could be addressed by providing authority to regulatory agencies to interpret the provisions of the legislation. This authority would not allow regulators to contravene the statute, but to provide necessary guidance as to how the legislation would apply in specific contexts. This would not only ensure that adequate consumer protections are maintained, but would also provide financial institutions with much greater legal certainty in conducting business with customers electronically.

Other changes are needed to ensure that consumer consent to electronic notice is truly informed, electronic notices function effectively, that records cannot be altered by either party after a transaction is consummated, and that the bill does not have unintended consequences outside of the realm of business-to-business and business-to-consumer transactions.

We hope that agreement can be reached on important changes that will strengthen consumer confidence in the electronic marketplace. We are looking forward to working with Congress, industry, and consumer groups to produce a win-win bill this year.

The third area I would like to talk about is computer security and defenses. As the financial services industry and the economy increasingly move on-line, we may become more susceptible to disruption. As reported last week, a number of major Internet sites were disrupted for significant periods by a technique known as distributed denial of service. Computer hackers bombarded these sites with bogus requests, effectively blocking access for legitimate users.

Malicious hacking is by no means novel, but last week's events serve as a wake-up call. The sheer numbers of users and the scope of the problem is changing. With more commercial activity being conducted online, an increasing share of our overall economy is potentially subject to disruption. Just as importantly, the means needed to cause economic disruption are easier than ever to come by. Hacking tools are posted freely on the Web, and access is as cheap and as portable as a laptop computer.

That is why in 1998 the President called on federal agencies and the private sector to develop better computer defenses. The first industry to act was the financial services industry. In October 1999, Secretary Summers announced the formation of the financial industry's computer defense center. This effort, led by the private sector, helps some of the largest financial institutions receive advance notice of potential attacks. In fact, as reported in the press, they received warnings concerning the possibility of distributed denial of service attacks before these attacks began. We encourage financial institutions of any size to consider how best to protect themselves against computer attacks and to explore appropriate means of information sharing.

The implementation of the financial modernization legislation and the continuing challenges of evolving technology will have important implications for the shape of the financial services industry in the future. I believe that the now-constant change driving financial services markets will produce -- perhaps sooner than we think -- an industry that looks very different from the one we now know. While there are a lot of uncharted waters ahead of us in this process, I believe that change will ultimately be very good for the industry, consumers, and the economy.