By the time you read this, the Fair Credit Reporting Act Limited Pre-emption bill might just be on President Bush’s desk awaiting a ceremonial signature. Then again, it might not. At deadline, the Senate Banking Committee was in session ratifying the deals made in the office of its chairman, Sen. Richard Shelby.
Direct marketers have every reason to be happy if it goes the way it seemed to be heading at deadline.
For one thing, the credit industry has convinced both houses of Congress that it is a national business requiring national rules. The result is that the FCRA will continue to pre-empt state law.
For another, the bill upholds the principle of consumer choice, especially over the area of sharing of data with affiliates.
But one has to study the history to understand why this is a victory. And the place to start is 1999.
That’s when the Gramm-Leach-Bliley Bank Modernization Act (GLB) was passed. It allows banks to share experiential data with affiliates for marketing and for consumers to be given notice — but no choice — in the matter. A deal had been cut along the way: In return for dumping choice, legislators agreed that GLB would not pre-empt state bills, which tend to be tougher.
Fast forward to August 2003. The California legislature, on about its 50th try, passed legislation giving consumers exactly what they didn’t get in GLB: Choice over affiliate sharing for marketing. Legislatures and industry lobbyists reached a last-minute compromise to prevent a ballot initiative on financial services privacy.
However, the legislature passed the bill, knowing full well that Congress was probably going to renew FCRA pre-emption. And the Senate version worked out by Richard Shelby pre-empts the states from passing rules that differ from those of GLB — on affiliate sharing, at least.
The bottom line is that consumers apparently are going to be given control over sharing of data for marketing purposes.
The Bush administration has played FCRA as an economic issue, and it is correct.
The housing, automotive and even vacation businesses are dependent on a fast, efficient credit market. And neither the administration nor the House wanted to divert focus from that by mixing up marketing and lending.
Sen. Shelby, however, is the biggest privacy hawk in the U. S. Senate. He was the author of the Shelby Amendment to the Drivers Privacy Protection Act, which effectively closed off motor vehicle and drivers license information to marketers. He is also a very practical politician who understands the importance of FCRA.
His centrist position, as reflected in the bill approved by the Senate Banking Committee on Sept. 23, was that the consumer should be given the ability to prevent affiliate sharing for marketing purposes, but not for credit underwriting.
There are good reasons why financial institutions need to share data with affiliates. For example, check overdraft protection might be offered by a different legal entity than the one providing the check processing services. There needs to be some natural bundling of services and marketing.
But research is clear on one point: Consumers want some control over the data, and control over marketing uses is the minimum requirement.
The Shelby version still needs to be passed by the full Senate. California’s Senators Feinstein and Boxer will do their best to strengthen the affiliate-sharing language to make it more like California’s new law. However, the Senate bill will most likely pass pretty much as it passed committee. The Senate and House bills will then go to conference where the difference will be reconciled. When the day is done, the concept of limited federal pre-emption to protect national markets from inconsistent privacy protections will be strengthened. I also believe that we will re-establish that consumers must have choice when information is used for marketing.
Lessons learned for the direct marketing industry? First, choice over marketing is now the bottom line. Consumers demand the option of saying no to marketing, even if they don’t use that choice.
Two, federal pre-emption in a privacy bill is damn difficult — but not impossible — to achieve. The industry won this battle by staying focused and having the research that supported the importance of an efficient national market. As the industry faces the real possibility of new privacy laws governing how we use information to segment markets and solicit individuals both lessons are important.
Marty Abrams is senior policy advisor and executive director of the Center for Information Policy Leadership for Hunton & Williams, Atlanta.
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