*Witnesses Hope Financial Privacy Bill Moves Carefully

Industry leaders urged lawmakers this week to move carefully before legislating any further privacy protections beyond what is currently in the Financial Services Act of 1999.

A hearing sponsored by the House subcommittee on financial institutions and consumer credit discussed privacy issues and H.R 10, which was passed by the House earlier this month. The act requires banks, securities firms and insurance companies to disclose their privacy policies and provide consumers a chance to opt out of having their information shared with third parties, prohibits sharing account and credit card information with marketers and outlaws pretext calling.

In her opening statement, subcommittee chairwoman Marge Roukema (R-NJ) said H.R. 10 doesn't address all privacy concerns and a comprehensive, rational discussion of how best to proceed on the issue was in order. Among those who testified were academics and privacy experts, representatives from smaller financial institutions and credit bureaus, and marketers and officials from the Direct Marketing Association, Federal Trade Commission, Department of Treasury and the Securities and Exchange Commission.

In his testimony, Richard Barton, senior vice president of congressional relations at the DMA, said H.R. 10's provision to opt out is consistent with the DMA's self-regulatory policies. The DMA's Privacy Promise, which went into effect July 1, “should be given an opportunity to work before Congress imposes new layers of regulation on marketing practices,” he said. “In particular, we urge Congress not to disturb self-regulation of ordinary marketing data obtained from financial institutions and not to sweep nonfinancial identifying information into this legislation.”

Barton said the DMA opposes some provisions in H.R. 10 that prohibit the sharing of account numbers, credit card numbers and other similar information under any circumstances with “telemarketers” and “direct mail marketers.” Some definitions in the bill — particularly the definition of “nonpublic personal information” — are unclear, he said, because they tend to blur the differences between personally identifiable financial information and other types of personally identifiable information.

“They might be read to interfere seriously with use of certain nonfinancial identifying information to make marketing databases more accurate,” Barton said. “As a result, a significant number of mailings, for example, would go to the wrong address and not reach consumers who have chosen not to opt out of receiving marketing offers. This would hardly be a victory for privacy, would undermine consumer choice and would hurt a very important sector of the American economy.”

FTC chairman Robert Pitofsky also offered mixed reviews of H.R. 10, testifying that the FTC generally supports H.R. 10 but suggested that notice and opt-out provisions covering nonaffiliated entities should be extended to affiliated companies. This makes sense, he said, because consumers likely view different companies as separate entities and are largely unaware of the existence or consequences of common ownership.

“The distinction between the disclosure of personal financial information to an affiliated entity vs. disclosure to a nonaffiliated one is not likely to be significant to consumers or to affect consumers' privacy interests in the underlying information,” he said.

In general, the majority of witnesses advised against an opt-in approach at this time, saying privacy policies must be easy to understand and the customer's opt-out process must be clear and straightforward.

Roukema said the subcommittee will continue to look into the privacy issues, including:

* Whether customers will be permitted to opt out of information sharing with affiliates.

* What effect an opt-in requirement would have in the new Internet economy.

* If it's possible that with good disclosure of privacy policies, there may be a way to eliminate the debate over opt in and opt out.

Additional hearings are expected in the coming months, including one on financial privacy in the online world.

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