Jewish World Review Sept. 9, 2003 / 12 Elul, 5763

Chris Hoofnagle

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Consumer Reports


Congress should stop banks from selling their customers' private information


http://www.jewishworldreview.com | One of the most important debates for personal privacy will be waged this fall in the House and Senate banking committees. Thus far, the debate is ruled by special interests - the banks, credit reporting agencies and their public relations firms - and there is little public awareness of the issue.

But the decisions made will define the bounds of individual privacy forever. At issue is whether Congress should establish a federal ceiling of privacy rights under the Fair Credit Reporting Act. If Congress does so, it will permanently prevent states from passing stronger protections on financial privacy and some areas of identity theft.

The special interests argue that a federal ceiling is necessary for efficiency in business operations. They have organized under a non-profit called the "Partnership to Protect Consumer Credit." If you live in Washington or visited the city recently, you've probably seen their advertisements in the Metro rail system depicting new cars, houses and engagement rings, wrapped in red tape. The implication is that state consumer protection laws will upset "uniform national standards" and frustrate the "miracle of instant credit."

Instant credit is important to many consumers, but its growth has led to record consumer debt and bankruptcy, and exploding rates of identity theft because of the alacrity with which credit-card companies open new accounts.

But their arguments are a Trojan horse for gaining immunity from state laws that grant more privacy rights to consumers than Congress is willing to consider. Just this week in California, the legislature passed the strongest financial privacy law in the county - one that will allow consumers to direct banks to not share their personal information among their affiliated companies. California's new law is an attempt to rein-in this practice of transmitting individuals' contact information, bank account balances, transaction information, and even information written on checks to telemarketers and data mining operations.

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Affiliate information sharing represents a growing risk to individuals' privacy. Companies, such as Citibank with its 1,900 affiliates, or Bank of America, which has more than 1,000 entities in its corporate family, can transmit your information for cross-selling or marketing to an unlimited degree under federal law. If Congress imposes this federal standard on the states, banks will organize their corporate structures based on these practices, making it politically impossible to regulate sale of personal information in the future.

Other states have developed stronger financial privacy rights as well. Last year, North Dakota voters approved a referendum establishing opt-in financial privacy rights, meaning that banks need to obtain customers' permission before selling their data to other companies. Seventy-three percent of North Dakota voters cast their ballots in favor of stronger privacy rights. Vermont and Massachusetts have stronger financial privacy rights as well, and perhaps not incidentally, residents of those states enjoy some of the lowest interest and identity theft rates in the country.

Congress is also considering the renewal of a prohibition on state laws regarding pre-screened offers of credit. Pre-screened offers are credit-card solicitations that are sent to individuals based on characteristics of their credit history.

They jeopardize our privacy because organized crime syndicates attempt to steal the offers as a tool to obtain credit in another's name. Currently, federal law requires individuals to opt-out of receipt of such offers. If Congress continues to pre-empt this area of law, states will not be able to assign liability to credit-card companies that spew these unwanted offers into the hands of criminals, or change the rules so that consumer consent be required before sending them.

In Washington, Congress is not only failing to address the public's desire for greater financial privacy, it is working to tie the hands of state legislatures on this and other critical issues. This is happening at a time when the credit industry is developing new tools that alter the balance of power between the consumer and financial institutions.

Congress should not pre-empt state privacy law this year when considering amendments to the Fair Credit Reporting Act. Instead, it should allow the states to fulfill their role as "laboratories of democracy" by providing innovative solutions to affiliate sharing, identity theft, and other, unforeseeable consumer credit problems that will emerge in the future.



Chris Hoofnagle is legislative counsel for the Electronic Privacy Information Center, www.epic.org. Comment by clicking here.

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