Hearing on "Financial Privacy and Consumer Protection."

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.

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. I’ve 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.

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 today’s 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.

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 other’s 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.

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 bill’s intent was to repeal our 1985 North Dakota privacy law, and replace it with the GLB definitions of privacy, thus reducing ND citizen’s 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 people’s 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.

• "North Dakota needs to pass SB 2191 to adopt GLB in North Dakota law, so we will be in compliance with GLB." We know this is not correct, because GLB is the law in all states, but does specifically allow state privacy law to supercede GLB, if the state law provides greater privacy protection for consumers than GLB.

• "North Dakota will experience job loss, if we do not pass SB 2191." Many of us believe the opposite is true. Because ND privacy law provides protection for all financial transactions, including businesses, ND could actually attract business and gain jobs, due to our privacy laws.

• "North Dakota will experience negative economic development if we don’t pass SB 2191. Businesses won’t want to come to ND if we don’t have the GLB privacy definitions in our law. It will be too expensive and too onerous to do business in ND." Again, this argument was not correct. If a business does not have to waste its time to Opt-Out, business expenses are reduced. With a No-Opt law, a business will not need to use any of its resources to track its privacy records, because there are none to track.

• "We don’t want North Dakota to be the only state in the nation, an "island", which has different privacy laws than the other states." Again, an untrue argument. I believe there are 5 states that have more protective privacy laws than GLB; Alaska, Connecticut, Illinois, Maryland and Vermont.

• "If we don’t pass SB 2191, the people of North Dakota may not be able to use their ATM machines, credit cards and their checking accounts." Since June 11, 2002, when the people of ND repealed SB 2191, our ATM’s, credit cards and checking accounts are working just fine, as they have since 1985, when we first passed our privacy law.

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 Dakota’s Future".

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".

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" group’s 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) don’t understand them (2) don’t realize their importance and (3) don’t know the ramifications of not sending them back to the financial institution.

• Give us back and protect our privacy.
• Our financial and personal information is ours. It does not belong to the banks and other financial service companies, or anyone else for that matter. It is not for sale.
• If we want to purchase a financial product, we are very capable of initiating the call or contact ourselves.
• We are not waiting breathlessly at home for our phone to ring, to be solicited by someone with the latest, greatest product, financial or otherwise, that we just can’t do without.
• We want our identity protected.
• Our financial and personal information is a property right we believe is protected under the United States Constitution.
• A bank should have no more right to sell my information than it does to enter my property, steal my car and sell it without my consent.

It’s 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.

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 mother’s financial affairs. She just advised her to buy an annuity from the bank.

The bank teller had no knowledge of my mother’s 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 mother’s overall needs.

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 Speier’s 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.

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 Dakota’s 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.

Due to the failure of the CA Legislature to pass Sen Speier’s 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 people’s private and confidential information. It’s their dirty little secret, their Achilles heal. They want to be able to sell it and share it without the people’s knowledge or consent, but they can’t talk about it truthfully and openly, because they know their customers are overwhelmingly against this practice.

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 people’s 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 don’t 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.