Before I begin, I would be remiss if I did not acknowledge the work of my colleagues testifying with me today. Senator Leahy, Congressman Tauzin, and Congressman Paul have all been advocates for personal financial privacy. I am especially pleased to join Congressman Ed Markey today who has been a leader and a fighter for consumer privacy in financial and medical arenas.
Our constituents are extremely concerned about their financial privacy. My constituents in the 1st district in Washington are shocked when they learn that their banking transaction experiences are not private. With certain exceptions, financial institutions may legally share all of the information about you and your bank account activity with affiliated businesses --or anyone else, for that matter. This shared information includes the amount of each check that you write, to whom each check is written, the date of each check, the amount and date of any deposits into your account, and any "outside information" available, such as information submitted on your initial application for an account. Under existing law, financial institutions are not obligated to honor your request to restrict the dissemination of this personal information.
When Congress passed the Fair Credit Reporting Act, we recognized this threat and required banks to notify customers of their privacy policies and to allow consumers to opt-out of any sharing of that information when it was going to be used for marketing purposes. The Fair Credit Reporting Act made specific exemptions from this requirement for "transaction and experience" information. This information contains the intimate details of your personal financial accounts and can be used to profile a customer based on income, spending patterns, or rate of deposits. At the time, the Fair Credit Reporting Act worked, and consumers trusted their banks to keep their private information confidential.
As technology has improved and the world of financial services has grown increasingly complex, this law must be updated to reflect the real world of financial services. Transaction and experience information can now be easily accessed and maintained for dissemination within affiliated institutions, and even sold to third parties.
This is why I am here testifying before you today.
I became interested in banking privacy laws after reading a letter from a constituent who was upset about his bank's plans to share his private financial records. I was shocked to learn of the stunning absence of statutory protections in these instances. Suppose banks, insurance companies, and securities firms become affiliated, something that will occur more frequently in the future. Will a bank tip off affiliated stockbrokers every time their consumers have a sudden increase in their bank account balance, causing the consumer to be subjected to even more telemarketing calls? Will banks "profile" their customers after reviewing their financial information, then have affiliates telemarket products to those customers or sell that profiling data to outside interests? Will life insurance companies affiliated with banks review personal checking records for indications of risky behavior, then increase premiums based on that information? Will banks target financial services to consumers in conjunction with payday deposits?
Under current law, there is nothing to prevent any one of these occurrences.
As Congress moves to modernize the financial services industry and allows the lines between banks, securities firms, and insurance companies to blur even further, financial institutions stand to gain a new profit incentive by sharing their customers' personal financial information. Customers who prefer to keep their financial information private will have no recourse unless we take action.
Customers should be able to opt-out of information sharing policies in their banks and financial institutions. Legislation is needed that will require banks and financial institutions to disclose their privacy policies and allow consumers to opt-out of information sharing plans - including transaction and experience information.
Last month, I introduced the Banking Privacy Act, H.R. 1929, to address this issue. The Banking Privacy Act will not affect the routine operations of a bank. There are specific exemptions in the bill relating to the day to day practices that banks have in place, which do not impact consumer privacy. The bill will protect consumers from unwanted marketing based on their intimate financial details and will give consumers control over the use and sharing of their financial information.
Federally insured depository institutions have an obligation to help take a stand for consumer privacy. The government provides a safety net for these banks in the form of insurance and safety provisions. It is only fair that these same banks provide a safety net for taxpayer privacy.
Finally, I would like to thank the Members of this Committee for holding today's hearing, as well as my colleagues who have joined me on this panel, for their interest in addressing this critical consumer issue. I am hopeful that, working together, we can craft a workable solution to the financial services privacy concerns of bank customers.
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