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Privacy Legislation A Two Edged Sword
We are watching closely the development of the House Commerce Committee Financial Reform Legislation, as it pertains to consumer privacy protections.
After the death of the Know Your Customer regulations, consumer groups have continued to be very vocal in their efforts to maintain the momentum on the privacy issue. But as will happen when a subject such as this is brought to the attention of fringe groups and individuals, the pendulum swings too far.
The original proposal was for giving customers the right to opt-out of having information shared with third parties, such as telemarketers. Many financial institutions already had this option in place on their web sites for certain information.
Unfortunately, the original language and intent changed from "third parties" to "affiliates or third parties."
Interesting problem
John Byrne, senior counsel of the American Bankers Association, said, "The measures, if enacted the way they were proposed, could force banks to develop expensive new computer systems and would interfere with outsourcing agreements and bank sales of mortgages to affiliates."
Another major change would be the fact that the Federal Trade Commission would be the chief regulator of the banking and insurance industries.
Dana Turner, Principal of Security Education Systems in San Antonio, Texas, also has misgivings about the legislation as it pertains to fraud and investigations. "If the bank is a victim, or is used as a conduit for the flow of illegal funds, or if there is a violation of the Bank Secrecy Act," he asked, "will the bank be able to share information on the perpetrator with law enforcement, and/or with other victim or potential victim financial institutions? I see huge problems with this unless there are some definite exemptions and exceptions."
Robert Rowe, Regulatory Counsel of the Independent Community Bankers of America said, "The banking business is based on information, and bankers have long recognized the need to protect customer information. But customers also demand service from their banks, and without the ability to share information, banks can't offer a wide range of services. It's critical to develop a balance, but the balance has to be carefully established. Hasty action by Congress could throw a monkey-wrench into the works."
Copyright © 1999 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 9, No. 6, 7/99
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