Federal Reserve Unveils Proposed Financial Privacy Rules

The Federal Reserve Board, with half a dozen other government agencies, late last week unveiled a series of proposed rules to protect the privacy of individual personal financial information.

The rules would implement the privacy sections of the Financial Services Modernization Act overhauling the nation’s financial industry which President Clinton signed into law last November.

The act permits banks, financial institutions, insurance and securities firms to merge and offer competing products and services. But it makes it tougher for them to share the names, addresses and telephone numbers of their customers with each other or with unaffiliated third parties for marketing purposes without written permission.

While the law allows consumers to opt out of having their information shared with anyone, it also requires the holder of that data annually provide consumers with a written copy of its privacy policy and a list of the companies or organizations with which it shares that information.

“You have go give a very explicit notice of data you’re gathering, and who you will share it with,” said Marty Abrams, vice president, information policy and privacy for Experian. “And if you’re going to share if with a new class of users, you have to give a new notice [to the consumer], and then wait 30 days before using it. This, he said, removes “a lot of flexibility.”

The proposed rules would also expand the definition of non-public data (or data that is unusable without notice and choice). Under the proposed definitions, simple names and addresses would be deemed non-public if they have been provided by the consumer in the course of a transaction (even if they are available from other sources, such as telephone directories).

“What they literally did was determine that any time the information comes from the relationship between the consumer and the financial institution, it is non-public,” Abrams said.

The proposed rules were jointly developed with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the National Credit Union Administration, the Treasury Department, the Securities and Exchange Commission and the Federal Trade Commission.

They also detail the various methods that individuals can use to exercise their opt-out rights, while including penalties for violations of the rules.