The Senate Committee on Banking, Housing and Urban Affairs held a hearing yesterday on financial privacy and consumer protection. Text of prepared testimony by several witnesses is available.
The testimony from Rep. James Kasper of the North Dakota House of Representatives is particularly interesting.
My best client is a small business in Fargo, North Dakota. I have handled their insurance needs for almost 20 years. When they have an insurance need they call me. Recently, one of the principals called and asked me to come to his office to look at a life insurance proposal they had just received from their big bank insurance agent. This agent had been given their corporate and personal financial information, including salaries, ownership percentages, ages, tax bracket, social security numbers, dates of birth and additional confidential information, without their consent or knowledge. They had never met or heard of the insurance agent and had not asked for any insurance proposals. My clients were astonished and upset that the bank gave this insurance agent their information without their consent or knowledge.
All it takes is a few bad actors to spoil the show. He goes on to talk about what he thinks is going to happen in California with respect to financial privacy legislation.
Due to the failure of the CA Legislature to pass Sen Speier‚s privacy law in California, an initiated measure has begun, headed by Chris Larsen, chairman and CEO of E-Loan.com an Internet mortgage loan company. I predict it will be overwhelmingly successful in 2004, regardless of how much money the big banks spend to defeat it. In fact, the more they spend, the larger the vote will be to pass the privacy law in CA, because the banks cannot address the truth about how they use people‚s private and confidential information. It‚s their dirty little secret, their Achilles heel. They want to be able to sell it and share it without the people‚s knowledge or consent, but they can‚t talk about it truthfully and openly, because they know their customers are overwhelmingly against this practice.
John Dugan, a representative of the Financial Services Coordinating Council, took the opposite point of view.
Opt-in provisions deprive consumers of benefits from information sharing (such as the depositor‚s relationship discount on a mortgage loan described above), because consumers rarely exercise opt-in consent of any kind˜even those consumers who would want to receive the benefits of information sharing if they knew about them. In essence, an opt-in creates a “default rule” that stops the free flow of information. This in turn makes the provision of financial services more expensive and reduces the products and services that can be offered, which actually frustrates consumer expectations. In contrast, an opt-out gives privacy-sensitive consumers just as much choice as an opt-in, but without setting the default rule to deny benefits to consumers who are less privacy-sensitive.</blockquote.