Gaining the Congressional Viewpoint
Dominating discussions in financial services marketing has been this month's implementation of the Gramm-Leach-Bliley Financial Modernization Act. This legislation has required extensive preparations by banks and has generated aggressive scrutiny by regulators, politicians and consumer advocates who think marketing practices and regulations are not strict enough.
In one meeting, I found myself explaining a privacy and marketing practice issue to Rep. Mike Ross, D-AR. My presentation was based on work we conducted recently with Jim Conway of the DMA's government relations office in Washington to develop responses to a Notice of Proposed Rulemaking issued April 18 from the Office of the Comptroller of the Currency.
The OCC outlined several new requirements for marketing a popular bank product known as debt suspension agreements. A strict interpretation of this directive would require a written signature to enroll a customer in the program and would eliminate the common practice of accepting enrollments by phone. Comment letters from interested parties were due June 18 to the OCC. Our position is that when banks offer customers this program and most other services offered over the phone, they consistently ask customers to allow their enrollment affirmation to be recorded to avoid any misunderstandings.
In explaining this position to Ross, I emphasized the professional management and comprehensive supervision under which bank-sponsored programs operate. Referring to consumer privacy in general, he responded, "I am for privacy with common sense. Although I voted for the bankruptcy bill, I am concerned when my mailbox is flooded with credit card applications and see the people of my district who make $19,000, have children and use credit cards to make ends meet, then fall into bankruptcy."
A member of our group cited OCC Interpretive Letter No. 910 dated May 25, which responded to a request by several financial marketers that bank-contracted third parties be allowed to use customer account numbers to facilitate billing. The letter said the OCC turned down this request based on its interpretation of Gramm-Leach-Bliley, which prohibits any disclosure of account numbers other than to consumer reporting agencies. This ruling appears to force banks to use logistically complicated means to bill customers. The added expense of conducting these processes will result in some banks, especially smaller ones, limiting offers to customers and will force some program providers to quit working with banks entirely.
I later met with Michael D. Thompson, legislative assistant to Rep. Vito J. Fossella, R-NY, who thinks that "if a consumer gives consent and disclosure is provided, there should be no problem."
Later our group met with Sen. Wayne Allard, R-CO. The senator was sympathetic to a comment by the DMA's Mark Micali that Gramm-Leach-Bliley should not be amended until some time has passed and its effect can be realistically evaluated. "We need to hear more from the leadership of financial service companies," Allard said.
Allard said some in Congress were unhappy with the privacy notifications mailed by financial institutions this spring in preparation for GLB. One bank marketer pointed out that his organization had spent $4 million to $6 million sending the notifications -- "an expense right off the bottom line with no way to earn anything," the bank marketer said. "It would be painful to revisit."
To the senator's point, William Safire, in a June 21 column in The New York Times, made a questionable attempt to equate a recent Supreme Court ruling on criminal investigations with privacy issues related to marketing practices. Safire labeled the banking industry's notifications "unintelligible prose." Rep. John LaFalce, D-NY, the senior Democrat on the House Financial Services Committee, is gathering signatures from Democratic colleagues for a letter to Treasury Secretary Paul O'Neill and Federal Reserve chairman Alan Greenspan complaining about the privacy notices, the Associated Press reported June 22.
In speaking of telemarketing practices, Allard recounted his own experiences receiving calls at dinnertime. Though disliking these interruptions, he said, "Consumers now have [a] remedy if they want to do something."
More severely, he said, "I don't like negative-option programs. It borders on an illegitimate business practice." The senator cited a prepaid legal program that automatically charged you when you bought legal texts.
The DMA is concerned that opt-in requirements could be added to GLB and limits could be placed on the sharing of data with affiliates. Rep. Felix J. Grucci Jr., R-NY, said, "Information sharing among bank affiliates could come under greater scrutiny."
As an example, several bills introduced in the California Legislature this spring would require financial services companies to obtain written approval from customers to offer them third-party programs. Privacy bill A.B. 203 was defeated in committee May 30 after extensive lobbying by banks and insurance companies. A similar privacy bill, S.B. 773, proposed by state Sen. Jackie Speier, a Democrat, was defeated by one vote in committee June 25.
Micali said the banking industry needs to differentiate between privacy practices, which reflect consumer rights, and identity theft, which is fraud by criminals.
In late May, I spoke on privacy issues at a meeting in New Hampshire of U.S. Postal Service officials and their commercial customers. Kenneth R. Jones, Boston postal inspector in charge, said that identity theft is becoming a much more serious problem. He said identity theft has attracted organized crime members because of the profitability of the crimes, the difficulty of police work involving multistate cases and the relatively low penalties compared with other crimes. Perhaps prevention of identity theft crimes is an area in which more regulatory energy would benefit both consumers and financial services companies.
The financial services industry needs to make points such as:
• It is important to keep data moving.
• GLB is good for consumer privacy.
• Banks manage marketing programs professionally and employ many safeguards for consumer privacy.
• Increasing regulation results in fewer choices and higher prices for consumers as program providers leave the business.
Keeping the financial services industry's house in order is, of course, important. It was clear that members of Congress noticed the occasions of sloppy practices and aggressive marketing tactics that occur from time to time. This makes them much less sympathetic when we go to them on important policy matters.