Hearing on Financial Privacy Issues

Prepared Testimony of The Honorable Edward J. Markey (D-MA)
Member of Congress

10:00 a.m., Wednesday, June 9, 1999

Thank you, Chairman Gramm, Senator Sarbanes, and other Members of the Committee for inviting me to join you here today to discuss the critical issue of a consumer's right to financial privacy.

The Senate Banking Committee has played a leading role in efforts to pass legislation to break down the Glass-Steagall walls that long have restricted or limited affiliations between banks, securities firms. and insurance companies. I support those efforts, and I would like nothing better than to see this Congress pass this Financial Services legislation that brings our regulatory system in line with the changes that are occurring in the financial marketplace.

But the great truth of the Information Age we have entered into is that the telecommunications technologies that gives every consumer a window onto Wall Street, also gives Wall Street's giant investment and commercial banks, brokerages, and insurance companies a window right into our homes. Information technology has brought us the new economy of electronic commerce and it has allowed corporations to become more efficient and workers more productive. These technologies make it possible for capital to flow around the world almost instantaneously. They allow us to buy and sell stocks and bonds over the Internet, to do our banking transactions at an ATM machine, and compare different mutual fund investment options. In the future, telecommunications technologies will also make it possible for banks, securities firms, and insurance companies to provide the consumer with one-stop shopping for financial services, including on-line access to checking, savings, credit card account and transaction information, brokerage accounts, mutual fund investments, and insurance annuity information.

But there is a darker side to cyberspace: these same technologies that provide so many benefits and conveniences can also give giant banks and Wall Street financial services conglomerates the opportunity to track our most intimate family secrets, compile sophisticated, highly personal consumer profiles of our buying habits, our hobbies, our assets and debts, our health information.

If we allow securities, insurance companies, and banks to merge, the resulting financial services holding companies will have virtually unprecedented access to our most sensitive personal and financial information, and they will be largely free to share this information with their new affiliates or even sell it to outside companies. Their army of lobbyists tout the cc synergies" that they promise will benefit the consumer. But they don't like to talk about the how these synergies could facilitate deeply troubling intrusions into our personal lives, our most closely guarded family secrets. What will this mean for the consumer?

When a husband dies, will the life insurance company tip off the securities affiliate to cold call the grieving widow as soon as she's received the check from her deceased husband's insurance policy in order to try and sell her stocks and bonds?

Will a bank deny a consumer a loan, because information it's obtained from its affiliated life insurance company indicates that he or she is HIV positive or was once treated for cancer?

Will a bank share or sell information about a consumer's credit card or check purchases

with data mining firms that offer this information to any unscrupulous huckster who is billing to pay for it?

Already, we are beginning to get a glimpse of the dark side of banking in cyberspace. Earlier this week, Comptroller of the Currency Jerry Hawke warned that some banks are entering into agreements with unaffiliated telemarketing firms under which the bank sold confidential customer information to the telemarketer for a percentage on the telemarketer's sales. The telemarketer then calls the consumer with "trial" offer in some product or service. If the customer indicates any general interest in getting information or materials about the offer, or expresses interest in the offer, he or she is automatically charged a fee for the "trial" offer without ever having knowing this has occurred and without the consumer's actually having divulged their credit card number to the telemarketer. In fact, the consumer may not even know that they had purchased anything until the charge shows up on their next monthly bill.

We have to act now to prevent these types of abuses and I think there are three basic principles that should guide our actions. First, I believe that consumers should have a right to know when personal information is being collected about them, and get access to such information for review or correction. Second, they should receive adequate and conspicuous notice whenever any personal information collected is intended to be reused or sold for purposes other than the original purpose for which the information was provided. And third, and most importantly, consumers should have the right to say "NO" and to curtail or prohibit the use or resale of their personal information.

The right to say "NO" is a fundamental to assuring that consumers are not harmed by the potential privacy intrusions made possible by technology and by legislation like H.R. IO. To give this right meaning, we must, at minimum, do three things. First, we should provide for an "Opt-out" for transfers of consumer information between affiliates of a financial institution for purposes unrelated to the original purpose for which the information was provided or obtained. This allows affiliates of a financial services holding company to share this information for crossmarketing or other purposes unless the consumer objects. Second, when it comes to transfers of information to any unaffiliated third party, we need a higher standard. Here, the financial institution should not be permitted to sell or transfer nonpublic personal information unless the consumer consents, or "Opts-In". And finally, for medical information, I believe we should provide an "Opt-in" right across-the-board.

These are the basic elements of what is needed to assure that the affiliations we are permitting under financial services reform do not foster intrusions into personal privacy. As the Congress proceeds to consider such legislation, I urge the Members of this Committee to support these principles. I know that many in the financial services industry oppose giving consumers the right to say "NO" so vehemently that they are threatening to kill the entire financial services bill if the kind of legislation I am talking about passes. What they are willing to accept is legislation that merely discloses to the consumer what information is being gathered and sold about them' Such proposals are tantamount to legalizing burglary, provided that the burglar leaves a note behind listing what he has stolen and what he intends to do with it. They do not give the public the privacy protections that they have every right to expect. So, as I said at the outset of my remarks, I support financial services reform legislation. But if the cost of passing a bill is that we fail go close the gaping privacy peepholes now riddling our financial services structure, that cost is too high. The special interests will have their cake, and eat our privacy too.

Thank you again, for letting me appear here today. I look forward to working with you on this important issue.

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