Clinton proposes privacy protections for
consumers, but banks say they're too much
By Lucy Lazarony • Bankrate.com

Privacy protections proposed by President Clinton would let consumers decide if and how their private financial information and medical records can be shared in merged financial institutions.

"We think this is important progress in providing consumer privacy protection," says Jean Ann Fox, director of consumer protection at the Consumer Federation of America.

"If you don't give consumers privacy protections on how information will be used within a financial conglomerate, you don't have any privacy protections at all."

In the Clinton plan, consumers:

• Must be given the choice of opting out before private financial information can be shared with company affiliates. (Financial institutions will be able to share this information unless consumers say otherwise.)
• Must opt in before medical information from an insurance company can be shared with affiliates. (Consumers must specifically give permission before a financial institution can share the information.)
• Must opt in before personal spending information, including where consumers shop and what they buy, can be shared with anyone.
• Must be able to learn about a financial institution's privacy policy without first becoming a customer.
• Must be able to access and correct all information collected on them by financial institutions.

Consumer advocates happy, bankers upset
While consumer and privacy advocates applaud the Clinton plan, banks do not. They say the plan would be difficult and costly to implement and they say they just don't see the need for it.

"The timing of it is kind of premature because the President's own administration is writing the privacy provisions from the financial modernization bill," says Catherine Pulley, a spokeswoman for the American Bankers Association.

President Clinton signed the Gramm-Leach-Bliley Act, which paves the way for banks, brokerages and insurance companies to merge, on Nov. 12, 1999. Federal regulators have until May 12 to translate the financial reform law into a comprehensive set of rules. The rules are scheduled to take effect six months later, in November. Banks are lobbying to push back the compliance deadline to July 2001.

The Gramm-Leach-Bliley Act has two key privacy protections. First, a financial institution must disclose its privacy policy when a consumer signs on as a customer and at least once a year thereafter. And second, financial institutions must give consumers the chance to block the sharing of "non-public" information, including transaction and customer experience such as account balances, with third-party marketers.

"We feel the administration should let the law work. Put it out in the marketplace," Pulley says.

Impatient for action
But consumer and privacy advocates don't want to wait.

"We believe the longer we wait to act the greater the erosion of personal privacy," says David Butler, a spokesman for Consumers Union.

He calls the consumer privacy protections in the Gramm-Leach-Bliley Act "a sham."

"It has so many exceptions and loopholes that it winds up offering consumers no real protection at all," Butler says.

When sharing is bad
The biggest problem privacy advocates have with the new law is its failure to place any restrictions on the sharing of customer information with affiliates. A mega-bank or mammoth financial conglomerate can do whatever it wants with private customer information, as long as it stays in the family.

But banks counter that customers benefit from this free flow of information. You may pre-qualify for a lower rate loan. You can sign on for a consolidated bank statement that details your credit card, checking and other accounts. Internal information sharing is also essential to call centers.

"You want to be able to have that representative make transfers and provide information on credit balances, checking balances and your securities balances," says Fritz Elmendorf, vice president of communications for the Consumer Bankers Association. "That's a very common need."

But consumer advocates say customers should also have the right to be left alone. Consumers should be able to sign up for a checking account and not have to worry about how their spending habits are being analyzed by a bank's affiliate.

"We are not advocating a ban on information sharing. We're simply saying consumers should be given a choice," Butler says.

No push-button solution
Banks say giving consumers more privacy choices won't be cheap or easy.

"We see a lot of difficulty in implementing the proposal. Conceptually some of these provisions would create some problems," Elmendorf says. "Just to create an opt-out option creates a huge task of programming multiple systems."

Giving consumers the chance to see what kind of information a financial institution has collected on them would also be hard to pull off.

"It's one of those great sounding principles that has to be examined in detail," Elmendorf says. "If I required my bank to give me every piece of information they have on me, that's not going to be easy. How far back would they have to go? ... It would be enormously burdensome."

What the people want
Difficult or not, these kinds of privacy protections may be what people want.

"The bottom line is consumers care very strongly about personal financial privacy protection. Congress failed to provide that protection last year," Fox says. "The president's proposals are an opportunity for Congress to provide the protection that consumers really want."

This heightened level of privacy does have a price. It won't be cheap for financial institutions to implement these kinds of privacy choices and policies. Much of the cost may be passed on to customers.

"These proposals would be very expensive for the industry. There would be expense and overhead does economically get paid for by customers and shareholders," Elmendorf says.

"It may be shareholders. It may be customers. Ultimately, everything is paid for by the people."

-- Posted: May 10, 2000