- October 9 - As the Senate prepares to amend the federal Fair Credit Reporting Act, it is expected to vote soon on how much control consumers should have over who can access their sensitive financial information. Right now, federal law allows banks, insurance companies, credit card firms and other financial institutions to share sensitive information about their customers with affiliated companies, and consumers have absolutely no ability to object.
That could change if the Senate adopts an amendment sponsored by Senators Dianne Feinstein, Barbara Boxer, Richard Durbin and Frank Lautenberg that would give consumers the power to stop financial institutions from sharing their private data with these companies, unless they meet very strict criteria. The issue will be considered sometime after the Senate returns Oct. 14.
Most people are very selective when it comes to disclosing their private financial information with others and yet this information is routinely shared by their bank or insurance company with hundreds of corporate affiliates, said Janell Mayo Duncan, legislative counsel for Consumers Union. These industry practices represent a fundamental invasion of our privacy and can contribute to identity theft, fraud, and aggressive marketing abuses.
The top dozen U.S. banks and financial institutions alone control thousands of affiliates, including health and life insurance companies, home mortgage and car loan lenders, housing developments, securities brokers and other businesses. Current law allows financial institutions to share such sensitive information as customers Social Security numbers, birth dates, account balances, buying habits and payment histories.
Businesses use this information to compile vast databases to develop profiles of their customers. Such profiling could lead to discrimination when it comes to buying services like life and homeowners insurance. An insurer, for example, could decide that a customer was too great a risk for homeowners coverage because they bought a gun. Some financial institutions have acknowledged using this information to create secret internal credit reports that can be used to determine what products are offered to customers and at what price.
Financial institutions also have used shared information to target consumers for products they dont need or cant afford. There have been a number of cases in which customers with low-risk certificates of deposit have been targeted by a banks affiliate for a riskier investment based on sharing of their financial histories. These consumers often senior citizens did not realize that the new product was not insured and they lost significant sums of money.
This kind of unrestricted information sharing also makes identity theft more possible, said Mayo Duncan. After all, the more places an individuals sensitive financial information is shared, the more opportunities there are for an identity thief, computer hacker or unethical employee to steal their identity.
Under the Feinstein/Boxer amendment, consumers would have the ability to refuse such information sharing except under strict circumstances. If a consumer refuses, financial institutions could only share their information with affiliates that are wholly owned subsidiaries, in the same line of business (i.e. banking, insurance or securities) have the same functional regulator, and have the same corporate brand identification, strictly narrowing access to the information.
Supporters of the National Consumer Credit Reporting System Improvement Act of 2003 legislation claim it gives consumers control over their personal financial information because they can opt out of marketing by affiliated companies. But it does nothing to keep these companies thousands of employees from having access to their information, which could result in identity theft. It also fails to prevent financial institutions from profiling consumer spending habits and payment histories and using the information to make important decisions about credit and insurance products. As a result, consumers could possibly wind up paying higher rates and be denied insurance, credit and other financial services under a veil of secrecy.
Consumers -- not banks and insurance companies -- should decide who has access to their personal financial information, said Mayo Duncan. The Feinstein / Boxer amendment will give consumers an important tool to protect their financial privacy and empower them to decide for themselves whether to allow such information sharing.