Copyright 1999 The Washington Post
The Washington
Post
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October 31, 1999, Sunday, Final Edition
SECTION: FINANCIAL; Pg. H01
LENGTH: 1097 words
HEADLINE:
Reinventing the Bank; Consumer Advocates Fear Pitches by Companies Will Breach
Personal Privacy
BYLINE: Robert O'Harrow Jr.,
Washington Post Staff Writer
BODY:
Imagine e-mail from a stockbroker recommending a portfolio
based on an internal review of your checking-account activity. Or a call from a
bank clerk to a favored customer offering discounts on insurance coverage. Or a
personalized letter proposing ways your newly widowed mother can invest her
insurance money.
With passage of legislation overhauling the financial
services industry imminent, these sorts of pitches could become as routine as
direct-mail promotions for credit cards and magazine subscriptions. That's
because the legislation, a historic departure from Depression-era laws, will
enable banks, securities firms and insurance companies to more easily merge with
one another. And it will allow them to share--without customer
permission--detailed account transactions, insurance details and an array of
other personal information.
Industry officials believe such sharing will
help them turn mountains of customer data into innovative financial products and
services. They say the law catches up to trends long underway, making the system
more efficient and better able to offer sophisticated services at a lower cost.
"The more efficient the business is, the better off everybody is," said
H. Rodgin Cohen, a banking-law specialist and partner at Sullivan & Cromwell
in New York. Cohen described the legislation as one of the "major financial
services bills of the 20th century."
But consumer advocates and their
allies on Capitol Hill say this industry dream-come-true comes with a heavy
price: individual privacy. Not only does it shred old-fashioned notions about
confidentiality, these advocates say, it also strips away an individual's
control over information routinely cited as among the most sensitive.
In
general, consumers will have no right to stop the sharing of personal
information among affiliated companies. In many cases, they may not even be able
to prevent a bank from sharing information with telemarketers pitching financial
products, as long as the marketers sign a contract agreeing not to pass those
details on to another company.
Supporters of the legislation argue that
the bill actually promotes privacy by requiring banks and other companies to
provide notice about how they share information and bolstering the government's
ability to enforce violations.
But some privacy specialists say that
obscures the bill's real, far-reaching impact on consumers.
"This is an
astounding loss of privacy for American citizens," said Joel Reidenberg, a law
professor at Fordham University and a privacy specialist. "Those institutions
will have access to incredible detail. Citizens will have no way of knowing
who's getting access to their personal information."
It may be years
before it's clear which side is right on the privacy issue. But there's no doubt
it has become a central theme--and will one remain one for a long time--in the
debate over the future of the nation's financial services industry.
The
issue got traction earlier this year. Consumer advocates and their allies on
Capitol Hill struggled to persuade Congress to give individuals a right to limit
such sharing, saying it could expose them to potential abuses or marketing
manipulation.
This spring, the advocates' effort got a boost when
President Clinton appealed to Congress to approve better protection for personal
financial data. The U.S. Comptroller of the Currency also issued a stern warning
that the banking industry would face tough new laws if it didn't better protect
customer information.
A flash point in the debate came in June, when the
Minnesota attorney general filed a lawsuit against U.S. Bancorp for allegedly
sharing customer names, Social Security numbers and other information with a
telemarketing firm in exchange for $ 4 million in commissions.
The bank
settled the suit, agreeing to change some of its practices. But attorneys
general across the country are working together to investigate other instances
in which banks have shared information with marketers.
In June, the
House Commerce Committee surprised Congress and endorsed legislation that would
give consumers new authority to stop banks, securities firms and other financial
institutions from sharing their information with affiliates or other companies.
But industry officials vowed to reverse that course and quickly made
good on their pledge, successfully lobbying for less-restrictive provisions. The
Clinton administration recently endorsed the final language in a series of
closed-door meetings with congressional leaders.
Although administration
officials said they pushed for even stronger provisions, they believe the law
bolsters current privacy protections. This week, administration officials
scrambled to put a good face on what they acknowledge was a tactical political
retreat on a key privacy provision: giving consumers the right to say no to
sharing among affiliated companies.
"It was not politically achievable
in the context of this bill," said Treasury Secretary Lawrence H. Summers.
But Summers pledged that "we will be pressing, continue going forward"
toward giving individuals more authority over how their personal information is
used by companies. "This legislation is a significant start," he said.
Industry officials argued that the point of reform is to make it as easy
as possible for financial services companies to merge with one another and share
customer names, addresses and account data. At a time when computers and
information are the driving force of the nation's economy, it doesn't make sense
to get in the way of industry innovation, financial services officials say.
In addition to improving services, the flow of information will enable
bankers, insurers and others to cut down on costly fraud, said Charlotte Birch,
a spokeswoman for the American Bankers Association.
"The whole bill is
about breaking down the barriers," Birch said. "What the bill tried to do is
provide balanced protections without creating undue inconveniences" for
businesses.
Advocates and some on Capitol Hill disagree. Said Rep.
Edward J. Markey (D-Mass.), who has helped beat the drum for privacy
protections: "It's a moral outrage."
But they are pleased about an
amendment to the legislation that would permit states to write tougher privacy
laws superseding the federal provisions.
"Clearly, it's a positive
thing," said Rep. Jay Inslee (D-Wash.). But Inslee said consumers shouldn't have
to push state by state: "Consumers need to fight and win this battle once, and
that's in the U.S. Congress."
LOAD-DATE: October 31,
1999 
