Copyright 1999 Newsday, Inc.
Newsday (New York, NY)
July 25, 1999, Sunday, ALL EDITIONS
SECTION: MONEY & CAREERS; Page F07
LENGTH: 2014 words
HEADLINE:
PRIVATE MATTERS / MORE BANKS NOW SELLING PERSONAL CONSUMER DATA
BYLINE: Henry Gilgoff
BODY:
AT CHASE MANHATTAN Bank, where the right
relationship is everything, there's been a change of heart about its
relationships with telemarketers who call Chase's customers to sell nonfinancial
services and products.
What Chase previously had characterized as
standard practice, at least among major credit card issuers, suddenly became the
subject of a moratorium by the nation's third-largest bank.
"We are
taking very seriously the widespread concern over customer privacy issues,
especially the use of telemarketing firms," Chase said in a recent statement,
adding that it was reconsidering its alliances with other companies to solicit
its customers.
So, Chase said, "While we resolve these complex issues,
we have implemented a moratorium on telemarketing nonfinancial products and
services using third parties." The moratorium began late last month and remains
in effect, with no time set on when it might be lifted, according to Chase
spokeswoman Kristen Hendrickson. Welcome to another phase of the Information
Age, as government regulators give greater scrutiny to the practice of banks and
unaffiliated marketing companies joining together for mutual profit - armed with
customer information from the banks.
Dennis Tafoya of Rockville Centre
was infuriated by this sharing of information, which led to what he said was an
unauthorized charge on his First USA credit card bill. "I give information to
these people because I have to, and suddenly they are passing along the
information for monetary gain.
"These things happen," he said
philosophically. "It's a shame." The privacy concerns represent an issue that
goes beyond any one financial services company as information becomes an
increasingly valuable commodity and mergers build conglomerates that sweep
across the securities, insurance and banking businesses.
Comptroller of
the Currency John Hawke Jr. last week talked of the potential benefits and
danger of the wave of mergers and acquisitions in testimony before a House
subcommittee.
"Although financial conglomerates may profit from the
cross-marketing opportunities and consumers may benefit from the availability of
a broader array of custom-tailored products and services," Hawke said in his
prepared testimony, "there is a serious risk that these developments may come at
a price to individual privacy." The sessions in which Hawke made his comments
were part of a move by Congress to overhaul the laws governing the securities,
insurance and banking industries. An offshoot of that drive is the legislative
attention being given consumer privacy and the exchanging of customer
information by banks.
State regulators have also raised concerns about
the effects of the bridges that have been built between banks and telemarketing
companies.
New York Attorney General Eliot Spitzer has begun an
investigation to determine whether banks and credit card issuers are staying
within the bounds of law in distributing customer data to other companies that
try to sell products - often unrelated to financial services - to the banks'
customers.
So far, Spitzer said, staff members assigned to address
privacy issues have queried various banks and credit card issuers about their
practices, though he declined to name the companies or disclose their responses.
"We've had discussions with companies about things that we think are
problematic," he said.
Federal and state law give banks great latitude
in selling information ascertained through their own transactions with
customers. But there is still room for possible charges of wrongdoing in the
distrubution of personal data, including consumer deception, misuse of
information obtained from credit reporting bureaus, and violations of rules
governing electronic transfers of funds.
At a banking conference on June
7, Hawke issued an early warning to the industry. The comptroller of the
currency, said: "There's mounting evidence of an increase in banking practices
that are at least seamy, if not downright unfair and deceptive.
"What's
happening is basically this: A bank will enter into an agreement with an
unaffiliated telemarketing firm under which the bank provides extensive
confidential customer information in return for a commission on sales by the
marketing firm." The amount of information distributed varies and some banks say
it is limited to a customer's name, address and telephone number. But the deals
are widespread among the country's biggest banks, Hawke said in a recent
interview.
Hendrickson, the Chase spokeswoman, said in an interview last
week that no single event precipitated the moratorium her bank implemented.
"This is an issue of great focus at the moment," she said.
One reason
clearly is the banks' concern about litigation launched by the attorney general
of the state of Minnesota. The initial target of that state's attorney general,
Michael Hatch, was the Minneapolis-based U.S. Bancorp, the parent of U.S. Bank
and the country's 13th-largest bank. U.S. Bancorp spokesman Donn Waage said the
suit, which was filed in U.S. District Court in Minneapolis on June 9 and
settled later that month, had forced the bank to reconsider the practices
questioned.
"A lawsuit does have a tendency to focus you pretty clearly
on something," Waage said.
The suit charged that U.S. Bancorp had
violated state and federal laws, most broadly by violating what Hatch's office
said was the customers' right to privacy by selling
personal, confidential information to
marketing companies.
In a statement issued the day the suit was filed,
U.S. Bancorp echoed others in the industry in its defense of the marketing
ventures. "In today's world," the company said, "joint ventures and cooperative
marketing programs are common practices in bringing benefits to customers." Last
week, Waage said, "We don't believe we did anything wrong." He presented the
decision of settling without admission of wrongdoing as something of a
no-brainer.
Waage said that the use of marketing companies to sell
nonfinancial products and services, including travel clubs and discount dental
plans, generated about $ 3 million in commissions to the bank since 1996. By
contrast, U.S. Bancorp reported $ 1.3 billion in net income for 1998 from all
operations of the bank holding company.
So on June 11, two days after
the suit was filed, U.S. Bancorp announced a halt to cooperative marketing
programs for nonfinancial products and services. "Once we got out of that
business," Waage said, "it was easy to settle." One key part of the agreement
was U.S. Bancorp's commitment to adhere to its new policy of not sharing
customer data with unaffiliated companies for marketing of nonfinancial products
and services. Waage said that the bank continues such arrangements, however, for
marketing of what it considers financial products such as credit life insurance.
U.S. Bancorp also agreed to pay $ 500,000 to the state and about $ 2.5
million that is to be given primarily to various charities.
A related
suit filed this month by Hatch's office against one of the companies that did
marketing in association with U.S. Bancorp-Stamford, Conn.-based MemberWorks
Inc.-is pending. MemberWorks said the allegations are unfounded.
Hatch
said the flood of consumer calls to his office in the days immediately following
the filing of the suit against U.S. Bancorp surprised him.
"I did not
know the depth of anger that people have on the issue of privacy," he said.
"People believe that a bank is a bastion of confidentiality, that their
financial information is secret, not to be shared." In a response to a query
from Hatch's office, U.S. Bancorp representatives wrote that the information
provided a marketing company about the bank's credit-card customers included
these items: their home address and telephone number, Social Security number,
current balance and credit limit.
U.S. Bancorp officials acknowledge the
response but say it is being misconstrued. Samantha Levine, a spokeswoman for
U.S. Bancorp, said the bank had "strict confidentiality agreements" with the
marketing companies it used, and the bank retained control over the information
even as those outside companies helped draw up profiles of customers likely to
buy a particular product or service.
Whatever a court would have made of
the Minnesota charges and U.S. Bancorp's responses had the case gone to trial,
the suit influenced a change at the country's largest financial services
company, Manhattan-based Citigroup.
Maria Mendler, a spokeswoman for
Citigroup, said that its customers' credit card account numbers are no longer
being released to marketing companies.
Previously, the numbers were
given, though that was done in encrypted form - put in code to mask the real
number.
The debate over privacy continued last week with sessions of the
House Subcommittee on Financial Institutions and Consumer Credit, part of the
House Banking Committee.
A bill, passed by the House as part of the move
to overhaul the laws that govern the banking, securities and insurance
industries, would require that customers be able to "opt out" of having
information about them shared with unaffiliated marketing companies.
John Byrne, senior counsel for the American Bankers Association based in
Washington, D.C., said his group supports that provision, which is not in a
version passed by the Senate.
However, Byrne said, his trade group
opposes any move to extend that requirement to information-sharing within
different arms of the same corporation. "We don't think you have to legislate
everything," he said.
Hawke argued that the opt-out provision should be
extended to information-sharing between affiliates, too. In his prepared
testimony to the subcommittee, he said limiting the option to only one kind of
marketing could hurt banks by impairing "the most priceless asset of their
banking franchise - the trust of their customers." Existing federal law on
banking and credit mandates opt-out opportunities only under very limited
circumstances.
Some companies already do more. Citigroup, for one, gives
credit card customers a chance to opt out of any sharing of information about
them, whether it is with an affiliate or an outside company, said spokeswoman
Mendler.
Notice about that opportunity is given when the customer signs
up for a card and from then on annually, but customers also can exercise that
option any time by calling the bank, Mendler added.
The erosion of trust
that Hawke warned of already occurred in one Queens woman's encounter with a
telemarketer.
Nelle Harris, a retired insurance claims supervisor who
resides in St. Albans, realized that Chase had given her name to a marketing
company when a telemarketer called in May.
Harris was told she was being
called as a Chase credit card holder. She agreed to an annual membership fee of
$ 69.95 for a service she thought of as a travel club partly because of an offer
made to give her two free airline tickets for signing up. According to a script
provided to me by Chase, the service pitched to Harris also promised a variety
of discounts, including savings on travel and on computer hardware and software.
Harris already has a computer and a scanner and a digital camera. "I
love technology," she said, "but I think there has to be some privacy." She'd
draw the line at a bank's releasing a customer's credit card number, as Chase
previously acknowledged doing in encrypted form. The account number was made
available to the marketing company, not the people who actually make the calls,
according to Chase.
The $ 69.95 fee was posted on Harris' bill on June
15, apparently after a 30-day trial period within which a customer can cancel.
Harris said that she had already requested a refund after having second thoughts
about the value of the service she agreed to on the phone. Hendrickson said
Harris will receive her credit.
If Chase's moratorium on "telemarketing
nonfinancial products and services using third parties" had been in effect
earlier, Harris wouldn't have had to bother.
GRAPHIC:
1) Photo by Steve Wewerka - Minnesota Attorney General Michael Hatch sued
Minneapolis-based U.S. Bancorp for selling consumer information. The case was
settled in June. 2) Newsday Photo/ Kathy Kmonicek - ''I love technology, but I
think there has to be some privacy,'' says Nelle Harris, who lives in St.
Albans. The retired insurance claims supervisor was called by a telemarketer
after her credit-card company, Chase Manhattan Bank, gave out her name. She was
charged for a travel club membership that she later cancelled. Newsday Cover
Illustration/Justin Levine - A bank handing over consumer information.
LOAD-DATE: July 28, 1999 
