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Press Release Thursday, March 23, 2000 |
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Sacramento, CA -- In a letter sent today to Governor Gray Davis
and members of the state legislature, consumer groups representing a
broad range of interests have called on lawmakers to enact
legislation to protect the privacy rights of financial institution
customers. Because of new federal legislation passed last year, banks
can share a customer's personal financial information with affiliated
insurance companies or brokerage firms or sell them to third parties
without obtaining the customer's approval. The groups have urged
lawmakers to adopt legislation that would require financial
institutions to obtain customer permission before doing so and to
disclose their policies regarding such matters.
"The only way to protect the privacy of financial information is to ensure that customers have ultimate control over how their records are used," said Beth Givens, Director of the Privacy Rights Clearinghouse. "Financial institutions should not be able to share a customer's personal financial records with their affiliates or third parties unless the customer gives consent." California lawmakers are scheduled to take up the issue next week.
In 1999, Congress passed the Financial Services Modernization Act,
which allows banks to become affiliated with insurance companies and
brokerage firms. The law requires financial institutions to provide
customers with an "opt-out" opportunity before selling customer data
to unaffiliated third parties. But the legislation says nothing about
obtaining consent in order to share customer data with bank
affiliates. In other words, banks can share sensitive financial
information with an affiliated insurance company or brokerage firm
without the customer's consent.
Not only would such disclosure expose consumers to unwanted
solicitations, but the affiliated companies could use the information
to make decisions about individuals who apply for insurance coverage
or brokerage services. For example, an insurer that denied a health
insurance policy to a consumer because of a previous health condition
could potentially pass on this information to an affiliated lender.
If the consumer applied for a home mortgage, the affiliate might
consider the consumer a risk and subsequently deny the mortgage
loan.
When the Financial Services Modernization Act was passed, Congress
encouraged states to adopt legislation that provides greater
protection for consumers' financial privacy.
The consumer groups have urged lawmakers to require financial
institutions to obtain their customers' affirmative consent
("opt-in") before sharing customer information with affiliate
companies and third parties. In addition, consumer advocates are
supporting proposals that would require financial institutions to
disclose their financial privacy practices and policies to their
customers.
Three different financial privacy bills have been introduced this
year: AB 1707 (Assembly Member Sheila Kuehl); SB 1337 (Senator Jackie
Speier); and SB 1372 (Senator Tim Leslie). All three bills include
"opt-in" and disclosure requirements. The Assembly Judiciary
Committee will hold a hearing on AB 1707 on March 28.
"Consumers have a right to financial privacy," said Shelley
Curran, Policy Analyst of Consumers Union. "Lawmakers should pass
legislation that gives consumers control over their personal
financial information and allows them to decide whether they want it
to be shared with other financial institutions. Then the burden will
be on the financial institution to demonstrate that allowing this
information to be shared is in the best interest of consumers."
In addition to the Privacy Rights Clearinghouse and Consumers
Union, other groups that signed onto the letter urging lawmakers to
support strong financial privacy legislation were the American Civil
Liberties Union, California Tax Reform Association, CALPIRG,
Californians for Educational Freedom, Capitol Resource Institute,
Consumer Action, Consumer Attorneys of California, Consumer
Federation of California, Eagle Forum of California, Electronic
Frontier Foundation, Free Congress Foundation, Neighbor to Neighbor,
and Utility Consumers' Action Network.
