When Congress passed the Financial Services Modernization Act last week, it effectively shifted the federal battle over personal financial privacy to the nation’s statehouses.
President Clinton is expected to sign the measure into law within the next 10 days.
The shift was made possible through an amendment to the financial services overhaul bill sponsored by Senator Paul S. Sarbanes (D-MD) that allows states adopt their own financial privacy laws, rules and regulations.
The bill allows banks, insurance companies and securities firms to merge and offer competing products and services to consumers. Sarbanes said his amendment “enables each individual state to go beyond the limited scope of the privacy provisions in the federal legislation and enact their own rules and regulations guaranteeing these fundamental privacy rights.”
In passing Sarbanes’ amendment, Congress opened the door for a crazy-quilt array of privacy laws, rules and regulations as diverse as any can be, according to Associated Credit Bureaus’ (ACB) spokesman Norm Magnuson. The ACB is the national trade organization for the credit reporting industry on which direct marketers rely heavily.
The ACB, he said, “is hard-pressed to see states coming up with uniform [privacy] legislation.”
The Direct Marketing Association, although pleased with most of the federal legislation, is also concerned about the shift and is expected to lobby strongly against any state legislation that would impose restrictions that are tougher than federal.
Jerry Cerasale, senior vice president, government affairs, would only say that the organization is “glad that Congress included giving consumers a choice to opt out of the information policies of financial institutions because it matches our own privacy promise.”
But some privacy advocates, such as Robert Ellis Smith, publisher of the Rhode Island-based Privacy Journal disagree.
Calling the Sarbanes amendment “a disaster for privacy,” he said the bill “really allows unfettered exchange of information among affiliated and unaffiliated” financial institutions [because] there are so many loopholes [in the law’s privacy provisions’ that consumers really can’t opt out.”
The original version of the bill would have required consumers to opt in to let banks, insurance companies, securities firms and their affiliates pass any information about them, including their bank and credit card account numbers to third parties. The legislation was later revised so customers would be actively required to opt-out from having their personal financial date disclosed to third parties.
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