Privacy -- an age-old question

"They that weave networks shall be confounded."

You might think this was uttered only recently in the current public policy debate over the sharing of consumer information. In fact, it's from Isaiah 19:9. Privacy concerns are not new, especially for the banking industry, but the information age has made them a critical consideration in the modern marketplace.

The Federal Trade Commission receives 2,000 calls every week from consumers reporting incidents of identity theft. In response to the wave of such crimes, nearly 2 million consumers in New York alone have signed onto the state's "do-not-call" registry, a list of households most telemarketers are barred from contacting. States across the country are establishing similar "do-not-call" registries.

President Bush recently signed the Omnibus Appropriations bill, which provides funding to allow the FTC to begin development of a national registry. Additional authorizing legislation is expected to be signed shortly. New York State also enacted a tough new law criminalizing identity theft last year, and almost immediately, arrests were made under the new penalties. Such measures should prove effective in helping to deter future crimes.

Information sharing speeds up loans
Consumers have come to expect rapid service in the electronic information age and are not likely to welcome any disruption. Because of the efficient sharing of data, credit transactions that used to take weeks or even months to complete, such as applying for a credit card or an auto loan, can now be completed in minutes.

When companies are able to share information, they are often able to offer pricing and service incentives, like coupons from a retailer included in a credit card account statement. For these reasons, the lawmakers who crafted the landmark Gramm-Leach-Bliley Act of 1999 believed they had struck an appropriate balance between information protection and access to credit and an array of other products and services.

Gramm-Leach-Bliley effectively removed the Depression-era barriers that separated the three major components of the financial-services industry: banking, insurance and securities. The intersection of these business lines created new opportunities for firms to cross-sell financial products to their customers. Firms needed the ability, however, to share certain data about their customers with other units of the company, their subsidiaries and affiliates, in order to realize these marketing efficiencies. The privacy provisions of Gramm-Leach-Bliley, among many other stipulations, generally permit companies to share information with affiliates but require companies to give their customers the opportunity to deny permission for their information to be shared with third parties.

So, why is privacy still a topic of continued debate in Washington?

Privacy has roared back as a key financial-services issue partly because a provision of the Fair Credit Reporting Act of 1970 is slated to expire in January 2004. Congressional action is needed to extend the provision, providing an opportunity to revisit federal privacy standards.

Individual states could seize upon the expiration of the federal pre-emption as an opportunity to enact their own laws governing information sharing among affiliates.

In fact, there are very restrictive privacy proposals pending in various states across the country, most notably California.

In addition, lawmakers at the local government level have their own ideas and could weave a chaotic patchwork of conflicting privacy laws across the country. The compliance problems this creates will ultimately hurt consumers. That is why the bankers in New York have consistently supported other, more effective means of deterring and punishing identity thieves.

The banking industry strongly believes that the ability to share information without undue restriction enhances the choice of products and services available to consumers and provides for greater efficiencies that can result in lower costs to consumers.

The industry hopes to avoid a situation where information-sharing laws differ from state to state and city to city. That would truly be "confounding."