FTC Advocates Continued Role in Protecting Competition and Consumers as Financial Services Industry Restructures

In testimony today before the House Committee on the Judiciary, William J. Baer, Director of the Federal Trade Commission’s Bureau of Competition, outlined, on behalf of the Commission, the agency’s expertise in evaluating the effects on competition of mergers and also its enforcement of several credit related laws. The testimony encouraged the Committee to preserve the agency’s competition and consumer protection jurisdiction over non-bank providers of financial services as technological innovations in electronic commerce, along with service innovations that combine banking, securities, and insurance elements, increase the potential for competition among industries that were once rigidly separated.

According to the testimony, it is the Commission’s view that mergers involving the financial services industry need to be subject fully to careful review. "Competition in the banking and financial services industries is vital to the stability and growth of the American economy. Accordingly, any change in regulatory policy should be carefully considered, not only in light of safety and soundness, but also with regard to competition and consumer protection," Baer said.

He continued, "The Commission believes that consumer protection and competition enforcement should work together to help ensure that consumers receive the benefits of effectively functioning markets. In the financial services area -- as in all other areas -- consumers are best served when they are able to make free choices in a free market. There are two functional requirements for a market to be free -- that competitors be able to provide a range of options for consumers, and that consumers have the ability to make informed decisions from among those options."

As an example of the agency’s merger enforcement in the financial services industry, Baer cited the FTC’s 1995 challenge to First Data Corp.’s acquisition of First Financial Management Corp., which would have merged the only two competitors in the consumer money wire transfer market, Western Union and Money Gram.

"Millions of consumers use wire transfers, often in emergency situations, such as when a person loses a wallet or when a traveler runs out of money. They are also extensively used by consumers without banking relationships, who constitute 20-25 percent of the total population. ... We estimate that our enforcement action saved consumers $15 million to $30 million per year," Baer explained.

In the consumer protection area, he also noted that the FTC’s Bureau of Consumer Protection enforces 12 federal credit laws that cover almost every aspect of consumer credit. In addition, the agency provides consultation to Congress and to the federal banking agencies about consumer protection issues involving financial services. "For example, the Commission has recently reported to or testified to Congress regarding the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and electronic commerce," Baer said. "In addition, the Commission periodically provides comments to the Federal Reserve Board regarding the Fair Credit Reporting Act, and the implementing regulations for the Truth in Lending Act, the Consumer Leasing Act, the Electronic Funds Transfer Act, and the Equal Credit Opportunity Act."

Baer told the Committee that the Commission believes, "As the financial services industry joins other industries in which competition has replaced extensive regulation due to technological changes and improved understanding of markets, it is important that deregulation should be accompanied by effective antitrust and consumer protection law enforcement, to prevent the anticompetitive accumulation and abuse of private market power and to prevent fraud and deceptive practices."

In addition, the testimony notes the Commission’s concerns about the privacy of consumers’ commercial transactions. "Cross-industry mergers, such as the Citicorp/Travelers transaction, may raise important privacy concerns, in particular over the treatment of consumer information by affiliated companies. Such mergers may allow detailed and sometimes sensitive information about consumers, including medical and financial data, to be shared among newly related corporate entities with relatively few restrictions. Consumers might not anticipate that providing information for insurance underwriting purposes to one entity, for example, might later be used by a financial institution that is or becomes an affiliate. The Commission is examining a number of issues relating to consumer privacy issues and tomorrow will present Congress with a report and recommendations."

In conclusion, Baer said, "Many of the legal and regulatory structures erected over the last 50 years are being streamlined or removed. These changes have the potential to increase consumer welfare substantially ... . The Commission has developed significant expertise in addressing both competition and consumer protection issues regarding financial services and non-financial commercial enterprises. ... the Commission believes that it should continue to have all the tools necessary to fulfill this vital role into the future."

The Commission vote to approve the testimony was 4-0, with Commissioner Mary L. Azcuenaga not participating.

Copies of the full text of the testimony are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202- 382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. P859910)