Chairman Sarbanes and members of the Senate Committee on Banking, Housing and Urban Affairs. Thank you for the opportunity to share my views on financial privacy and consumer protection.
James M. Kasper Background
I am a first term member of the North Dakota House of Representatives and I am considered a conservative in my state of North Dakota. Ive been active in political affairs for over 20 years in North Dakota. I believe I bring a unique perspective to the financial privacy issues as my business career is in the financial services industry. I am an independent licensed insurance and securities broker, and my practice is in the area of employee benefits plans and business insurance planning. My entire career has been spent in Fargo, ND, with the exception of one year in Minneapolis, MN. Because North Dakota law has allowed banks to sell insurance for many years, I have competed with banks this entire time, and have a very good understanding of how they compete and what their marketing practices are.
My First Legislative Term - 2001
Little did I realize that in my first Legislative session, beginning in January of 2001, a great deal of my time would be spent attempting to stop North Dakota banks from changing the very protective financial privacy law that North Dakota has had in effect since 1985. North Dakota privacy law protects not only consumer transactions, but all business and commercial transactions as well. Our bank privacy law, enacted in 1985, prohibited the sharing and sale of consumer information to anyone, affiliates and non-affiliates, for any reason. In todays vernacular, we had a No-Opt for affiliates and a No-Opt for non-affiliates. In 1997, the banking lobbyists quietly amended ND law to allow affiliate sharing of information, so the banks in ND could legally share confidential information with their affiliates, without consent. Many citizens feel this needs to be addressed in our 2003 Legislative Session.
National Strategy of Banking Industry
As you know, the Gramm Leach Bliley Act (GLB) was passed by the Congress, with an implementation date for Title V of GLB of July 1, 2001. GLB deregulated the financial services industry and allows banks, insurance companies and securities companies to have common ownership and to market each others products. It is my understanding that two organizations, the Financial Roundtable and the Financial Services Coordinating Council, have targeted all states that have a more protective privacy law than the minimum requirements of GLB, to eliminate those states privacy laws. They seem to be determined to stop any state Legislature from enacting any privacy laws that are more protective of consumer privacy than GLB and also to repeal any state privacy laws that are more protective than GLB.
ND Banks Work to Repeal ND Privacy Law in 2001 Legislative Session
To accomplish the bankers national goals required the repeal of our 1985 North Dakota privacy law. Therefore, the North Dakota Bankers Association, the North Dakota Independent Bankers Association and the North Dakota Credit Union Association had Senate Bill 2191 (SB 2191) introduced in the North Dakota Senate. This bills intent was to repeal our 1985 North Dakota privacy law, and replace it with the GLB definitions of privacy, thus reducing ND citizens privacy protections.
SB 2191 passed the ND Senate, in February 2001, and was assigned to the House of Representatives Industry, Business and Labor Committee, of which I am a member. When I became aware of the intent of SB 2191, I made the decision to work to kill the bill. For 30 years, I have competed against the banks in ND and I have seen how they use credit leverage to obtain sales and to eliminate competition. I had also learned how peoples personal and confidential financial information is being gathered all over the country, fed into huge computer data bases, and how consumer profiles of the citizens of our nation are developed and sold to telemarketing companies. I believe these practices need to be stopped. I also believe they may be unconstitutional.
The banks focused all of their power in the ND House to pass SB 2191. They had 3 full time lobbyists at the capitol for about 6 consecutive weeks. The Credit Unions had two full time lobbyists. Additionally, representatives of Wells Fargo, US Bank, and other large banks, made numerous visits to most of the Legislators and almost every one of the Legislators had personal visits from their local bankers. All of these lobbyists were urging the Legislators to support SB 2191. Their reasons were quite interesting:
The Banks and Credit Unions Used the Following Arguments in Support of SB 2191 in North Dakota:
All of these scare tactics and more were part of a carefully orchestrated campaign by the ND banks, in conjunction with their national associations, to confuse the issues at best, and out and out lie to the Legislators at worst, about the truth of SB 2191.
There were just a handful of Legislators that worked to stop this onslaught by the Bankers and Credit Unions. The final vote in the ND House, was 77 to 20 to pass SB 2191. The ND Senate voted by 34-12 to pass SB 2191. The Governor, a former banker, signed the bill and it became North Dakota law on July 1, 2001.
The Referral of SB 2191 The People of North Dakota Speak
Fortunately, this was not the end of the story. In early July 2001, a small group of ordinary citizens formed a group to repeal SB 2191. They called themselves"Protect Our Privacy". In North Dakota, the people are allowed to refer any act of the Legislature by gathering the minimum amount of signatures on petitions. In about six weeks volunteers gathered over 17,000 signatures, about 2.5% of our states population, far exceeding the minimum needed to refer SB 2191. The people of ND would now vote on the referral on June 11, 2002, to decide if they wanted to repeal SB 2191. That meant we had about 10 months before the referral vote. During this time the banks organized, hired an advertising agency, and raised big money to fight the referral. They even hired two incumbent North Dakota Legislators to be the co-chairs of their committee, which they ironically named "Citizens for North Dakotas Future".
Grass Roots Organization:"Protect our Privacy" to Repeal SB 2191
The grass roots organization against SB 2191"Protect Our Privacy", had no money and no paid staff. All we had was a small group of committed volunteers, who like Winston Churchill, determined we would "Never, Never, Never, Never Give Up".
To counter the power and money of the big banks, we wrote letters to the editor, appeared as guests on radio talk shows, held press conferences, and made appearances before civic groups. About two weeks before the vote on June 11, 2002, we obtained a contribution of $25,000 from the National ACLU, which allowed some radio spots to be run the last 10 days before the vote. Prairie Public Television also hosted a half hour debate about two weeks before the vote. Other than this, the campaign to repeal SB 2191 was by word of mouth, truly grass roots. Mr. Chairman, I would like to provide the Committee with copies of relevant documents for the record, concerning these matters.
Big Bank Media Campaign to Keep SB 2191 Backfires
All of this was small in comparison to the huge amounts of money the big banks spent on their advertising. Their media campaign was overwhelming in ND. Radio, TV, newspapers, talk shows, and civic presentations, began statewide. They obtained endorsement from our state Chamber of Commerce, from our former popular Governor, and most of the local Chambers of Commerce in our major cities. They even pirated the"Protect Our Privacy" groups name, adopting and registering the slogan, "Protect Your Privacy" and used it on their literature to further attempt to confuse ND voters. The various banks and credit unions placed pamphlets and brochures in their customers checking and savings statements and they placed signs in many lobbies, encouraging a yes vote on SB 2191.
In their most memorable TV ad, they actually showed a wall being built around North Dakota, stating that we would become an island if SB 2191 was repealed. The one thing the bankers would not talk about, however, was the truth about SB 2191. The banks want unlimited access to and the ability to sell and share their customers personal and confidential financial information, without the customers consent or knowledge. The Opt-Out notices required by GLB, which are supposed to be privacy notices and are supposed to provide consumers with an opportunity to stop the banks from sharing information, are a joke. Statistics indicate that over 95% of the people of our country throw these notices away because they (1) dont understand them (2) dont realize their importance and (3) dont know the ramifications of not sending them back to the financial institution.
The Vote in North Dakota June 11, 2002
The people of North Dakota spoke loudly and clearly on June 11, 2002, when by a 73% vote, they threw out and repealed SB 2191 and thus returned North Dakota privacy law to our very protective privacy statutes. Despite being out-spent 10 to 1, despite the bankers deliberate attempt to confuse the issues with their media campaign and despite the power of the banks and their hired staff, the people of ND saw through the charade of SB 2191. Their message is a national message for the Congress as well.
The Message to theCongress From the People of ND by Their June 11, 2002 Vote on Privacy is:
Why Do Banks Need Unlimited Access to the Peoples Financial and Personal Information?
Its all about market share, profit, and corporate greed, just like what our nation has recently experienced with the Enron scandal, wherein too many corporate executives will do anything to make profits and gain market share.
The lifeblood needed to increase market share by the Financial Services companies is the free flowing and easy access to consumers personal and confidential financial information. The GLB Act does not result in fair, open and more competition in the financial services industries. It results in the elimination of competition, wherein the big get bigger and small businesses by the thousands and hundreds of thousands will eventually be driven out of business, because they cannot compete with the financial might of the Citicorps and other mega financial conglomerates. GLB will have a long-term negative impact on rural America, as well. In ND, our state Legislature spends millions of dollars to attract new businesses to relocate to our state and our rural areas. Yet, we have a Federal Law, GLB, which places small businesses at a tremendous competitive disadvantage. When jobs disappear, the people leave. We are already experiencing this result all over America today.
Example of How Banks Share Information
My best client is a small business in Fargo, North Dakota. I have handled their insurance needs for almost 20 years. When they have an insurance need they call me. Recently, one of the principals called and asked me to come to his office to look at a life insurance proposal they had just received from their big bank insurance agent. This agent had been given their corporate and personal financial information, including salaries, ownership percentages, ages, tax bracket, social security numbers, dates of birth and additional confidential information, without their consent or knowledge. They had never met or heard of the insurance agent and had not asked for any insurance proposals. My clients were astonished and upset that the bank gave this insurance agent their information without their consent or knowledge.
My Mothers Financial Needs
My mother, who is a 79-year-old widow, just had a CD come due at her local bank, worth about $14,500. When discussing the CD renewal with the bank teller, she was told she should look at transferring the CD to an annuity. We learned later the bank teller was not licensed to sell annuities and did not know a thing about the rest of my mothers financial affairs. She just advised her to buy an annuity from the bank.
The bank teller had no knowledge of my mothers financial needs, other than the fact she had a CD due. Despite this fact, a financial recommendation was made to purchase an insurance product from someone who was not licensed and had no idea what the impact would be on my mothers overall needs.
These are but two examples of what goes on literally thousands of times every day.
A California Trip in July, 2002 Bank Tactics the Same Everywhere
Senator Jackie Speier, (D) California, invited me to come to Sacramento to help move forward her privacy bill, which was in trouble in the California Assembly (House of Representatives). I spent 4 days in CA in early July 2002, a few weeks after the repeal of the SB 2191 in North Dakota. I found the big banks were using the identical tactics in CA as they had in ND. One of their tactics was to confuse the issues. They also used intense lobbying pressure from banking representatives. Unfortunately, their tactics worked, as Senator Speiers bill was just recently defeated by a few votes. As I stated earlier, there appears to be a national strategy by the Banking Industry, to kill all attempts by state Legislatures to enact any state Legislation that is more protective than the GLB privacy rules. It worked again in California.
Where Should Congress and the Senate Banking Committee Go from Here
It is imperative, in my opinion, that this Committee draft amendments to Title V of GLB, to do the following:
For non-affiliate transactions, enact a No-Opt provision, prohibiting the sharing and selling of personal and financial information to non-affiliated third parties for any reason, with the exception of data processing for customer requested transactions such as ATM machines etc., and for transactions required by law to comply with Federal and state statutes.
Amend GLB to provide for an Opt-In method of privacy protection for all affiliates sharing and selling of information. The people of our nation should have the right to stop their information from being passed around, to affiliated companies, and it should only be allowed with their advanced written consent and knowledge.
Repeal the Joint Marketing loophole. This charade of an exemption makes a mockery of the already weak privacy protections in current GLB, as almost any transaction can be designed by the banks to be exempt under this part of GLB.
Enact Legislation to provide privacy protections for all financial transactions from all sources, including business, agriculture and non-profit financial transactions. Under GLB these types of entities have no privacy protection whatsoever. They should have the same privacy protections that consumers do.
What will Happen if Congress Fails to Amend GLB?
The people of the United States and the Legislators of the state Legislatures are beginning to realize the damage that has been done to the people of our country over the past number of years, due to the free flowing and public availability of their private and confidential information. I know of three states where Legislators are currently working on state Legislation to override the GLB privacy rules and to enact state Legislation similar to North Dakotas recently restored privacy law. I believe this is just the beginning of what will become a national ground swell, wherein the state Legislatures will enact real privacy protection for their citizens. Congress should act immediately to correct the mistakes made in GLB and change its privacy provisions, as suggested in this testimony.
California Initiative 2004 Vote
Due to the failure of the CA Legislature to pass Sen Speiers privacy law in California, an initiated measure has begun, headed by Chris Larsen, chairman and CEO of E-Loan.com an Internet mortgage loan company. I predict it will be overwhelmingly successful in 2004, regardless of how much money the big banks spend to defeat it. In fact, the more they spend, the larger the vote will be to pass the privacy law in CA, because the banks cannot address the truth about how they use peoples private and confidential information. Its their dirty little secret, their Achilles heal. They want to be able to sell it and share it without the peoples knowledge or consent, but they cant talk about it truthfully and openly, because they know their customers are overwhelmingly against this practice.
The Real Tragedy Perpetrated on the American People
I believe that the Congress needs to realize the damage and danger they have perpetrated on the American people by failing to pass real privacy protection. What has been done under GLB and its sister law, the Fair Credit Reporting Act, is to make peoples private information a public commodity, available to all those who have the money to buy it. By allowing the privacy protections of the people of our nation to continually be eroded, traded and sold as just another commodity, the very fabric of our Republic is threatened. When our citizens no longer feel safe and secure in their homes and in the work place, because their most personal and private information is no longer personal and private, we face the very real possibility that our citizens will lose confidence in our financial services industries. If that occurs, we will be in tremendous trouble. If you dont think it can happen today, all you need do is look back to 1929 and what occurred in our nation then. Those who do not remember history are bound to repeat it.
Strong and meaningful amendments are necessary now to strengthen the Federal privacy law in GLB. I urge this Committee to courageously move forward to do so.
Thank you, Mr. Chairman, and all of the Committee members, for the opportunity to share my experiences and viewpoints with you today. It has been an honor.
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