Last Chance For Privacy Protection?

San Francisco Chronicle, August 1, 2002
Last chance for privacy protection?
Michael McCauley and Shelley Curran
Consumers Union West Coast Regional Office

Last month, North Dakota citizens voted overwhelmingly to retain a state law that gives consumers control over whether banks can release personal financial information. Is it any surprise that more than 73 percent of North Dakota voters don't want their banks to sell or share information about their credit card balance or spending habits without first getting permission?

Is there any reason to believe that Californians feel differently? A statewide poll commissioned by E-Loan earlier this year showed that 80 percent of Californians are uncomfortable with financial institutions' selling their personal information.

And yet, legislators in Sacramento have failed to enact stronger privacy protections. Not surprisingly, the financial industry has used its considerable political muscle (backed by millions in campaign contributions) to block commonsense reform.

Why has financial privacy suddenly become an issue for consumers? Because in 1999, Congress passed the Gramm-Leach-Bliley Act, which removed the legal barrier separating commercial and investment banking. That allowed banks to engage in insurance underwriting activities, prompting them to further penetrate the insurance and investment businesses.

It also made it more difficult for consumers to protect their privacy because banks, insurance companies and securities firms are now more easily able to share or sell their customers' personal financial information without customers' permission. As a result, such information as a customer's account balance, payment history and employment are routinely shared and sold.

This can harm a consumer beyond unwanted telemarketing calls at dinnertime:

-- Some banks have sold personal financial information about their customers, including credit card account numbers, to telemarketers who charged consumers for services, even though the consumer never consented.

-- Credit card issuers may use data regarding the spending patterns and buying habits of consumers to charge them higher rates.

-- A senior citizen who has significant equity in a home and whose only source of income is his or her monthly Social Security check might be targeted for a predatory home mortgage loan.

Sen. Jackie Speier (D-Hillsborough) introduced legislation to protect Californians' financial privacy. SB773 will give us control over our personal information and allow consumers to decide whether it can be shared or sold. The bill passed the Senate last year but fell nine votes short in the Assembly,

in part because so many lawmakers didn't bother to vote. It has been revived and, according to Speier's office, has another chance this month.

SB773 allows consumers to stop the financial institutions they do business with from sharing their personal information with affiliates by opting out. Most financial institutions would be required to get prior approval from consumers to share or sell financial information with unaffiliated third parties. The bill establishes fines for businesses that violate the law.

Last year, Gov. Gray Davis maintained that he favored the kind of reforms provided by the Speier bill, but he ultimately opposed it. This year, Davis supported a more industry-friendly bill, which died after it failed to win any support among consumer groups.

California consumers deserve better leadership on this issue from their elected representatives. Members of the California Assembly still have time to reconsider the Speier proposal before the legislature adjourns at the end of August. But if they fail to act, they shouldn't be surprised if frustrated voters turn to the ballot to enact the strong financial privacy protection they want and deserve.

Michael McCauley is the media director and Shelley Curran is a policy analyst for West Coast Regional Office of the Consumers Union in San Francisco.

View Files Sorted By Office: Consumers Union OPI, New York - Washington DC Office
West Coast Regional Office - Southwest Regional Office - Consumer Policy Institute

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