The privacy of consumers has become a very public issue. xxWith the federal government’s action to deregulate banking this past November, some local state legislators are seeking stricter ways to protect a consumer’s right to privacy.
But that has some bankers worried that they will no longer be able to do business efficiently, and that such laws could go so far as to prevent them from being competitive in an ever-expanding market.
The latest bill on the issue, filed by Rep. William Straus, D. Mattapoisett, and co-sponsored by state Sen. Steven Tolman, D-Boston, is due for review by the Senate Committee on Banks and Banking early this week. The bill is designed to pick up where the federal government left off with the Gramm-Leach-Bliley Act, when it broke down Depression-era limits on what banks can do – and cleared the way for states to adopt new, tighter consumer privacy laws.
This banking privacy bill is different from one introduced by Lt. Gov. Jane Swift prior to the federal government’s action in that it is less far-reaching, according to Straus. This bill refers only to financial institutions and outlines specifically what kind of information would fall under consumer privacy protection, including name, address, telephone number, gender, marital status and financial products or services requested or received. Financial institutions would only be able to divulge such information in certain circumstances, most in the course of doing business requested by the customer.
“This is the exact reverse of the system that’s now in place,” Straus said.
Currently, banks practice the opt-out system, which means that customers must specifically request that their personal information not be used for any purposes other than conducting their personal business.
“My bill is the opt-in proposition … that your bank does not have permission to use your information unless you grant them permission,” said Straus. “The clear intention here is that many more consumers will not be bothered by the marketing deluge.
“This was just an obvious one to me, to take advantage of what Congress granted to the states,” Straus added. “This is to prevent what customers don’t want.”
What customers don’t want can include everything from advertisement mailings to marketing phone calls at home, a potential result of a loose information rein on financial institutions. Tolman said that his own personal experience with telemarketers pushing financial services was part of what led him to support this bill.
“I don’t know about you, but I am inundated by calls at home … They don’t give up,” Tolman said.
However, some bankers take umbrage at the inference that they play fast and loose with the identities of their customers.
“We are sensitive to the privacy rights of our customers,” said Kevin Kiley, executive vice president of the Massachusetts Bankers Association, which opposes the bill. “Our relationships are based on trust.”
Kiley pointed out the strict limitations on the use of personal information already in place with the Fair Credit Reporting Act and the opt-out provision.
“There are strict limitations on the way customer information is being used right now. That’s different from our ability to cross-market and sell products and services,” Kiley said. “I think banks will be aggressive about educating their customers about their rights.”
If the Straus-Tolman proposal were to pass, the specificity of the language might effectively “hamstring” financial institutions from taking advantage of their newly won opportunity to open new divisions and branches such as investment houses and insurance companies, according to Kiley.
‘Broad Bill’
The language of the bill offers nearly a dozen exemptions where banks are free to share personal information about their customers, all along the line of doing business, protecting the customer from fraud, or complying with state and federal laws such as investigations and the federal Fair Credit Reporting Act.
“Once you start coming out with specific exemptions, it’s a slippery slope. I think it’s an extremely broad bill the way it’s currently drafted,” Kiley said.
Kiley mentioned the example of a multi-state bank that potentially would have to face a different set of regulations in every state, or the plight of smaller institutions trying to compete with the services offered by larger banks, but unable to cross-market those products and services.
“The vast majority of those affected by this will be the small and medium-sized community banks,” said Kiley. “They’re at a point where they’re starting to expand their products off in the mutual funds area and in the insurance area. They need to have the latitude to compete in today’s market,” especially a market where multistate institutions may not face the same limitations, he said
Straus, however, mentioned the well-publicized case of Chase Manhattan of New York with that state’s attorney general’s office. The financial institution settled in response to charges of selling the personal credit information of as many as 22 million customers to marketers – and getting a commission out of the deal.
Straus doesn’t pretend to think that most customers will choose to allow banks to use their name and other information for other purposes such as marketing. However, he also believes that banks have no need to worry if his bill becomes law.
“This [bill] allows the intentional legitimate use of information the customer expects from them to occur,” Straus said. “I think banks should focus on making themselves attractive to customers, not this marketing sideline of theirs, to be selling customers’ information. I don’t think financial institutions should be afraid.”
For now, Straus said he will concentrate his efforts on garnering a favorable review from the Committee on Banks and Banking. The committee could also give an unfavorable review, or decide to study the matter, which would in effect mean that no further action would be taken on the bill, said Straus.
“This [bill] grants to customers of financial institutions the right to control how information about them is used in the marketplace. I have this old-fashioned notion that your identity belongs to you, not the people you do business with,” said Straus.
Tolman said he believes there’s a “broad base” of support for the bill.
“Ultimately, it’s protecting consumers’ privacy,” he said. “Banks can be competitive and innovative. They don’t need to be able to sell private information in order to be successful.”
Kiley’s stance? Wait and see what regulations the federal government develops before passing a set of potentially contradictory laws.
“As a state, we have dominated the financial services industry in New England and in the Northeast. We want to continue to provide as much flexibility and operating efficiency as we currently have,” Kiley said.
