Defending Financial Privacy

For centuries, bankers used to pride themselves on being discreet and confidential about their customers? business.  But today that tradition of discretion and confidentiality is breaking down, and consumers? financial privacy is in a sorry state indeed.

The problem lies not just with banks, but also with insurance companies and many other corporations who gather details about the financial lives of Americans, and increasingly see those details as a valuable resource to be mined for profit. 

Why Americans think financial privacy is important

Surveys by Pew and many others have consistently shown that large majorities of Americans find such behavior offensive.  And, in a stunning demonstration of that deep belief in good privacy laws, the voters of North Dakota on June 11 voted against a law that would allow banks to share personal information without their customers? permission.  Despite a huge and well-financed effort by financial interests that blanketed the state with television advertising, fully 72% of the voters chose to reject the anti-privacy law.

Americans object to the breakdown of financial privacy because it:

• Leads to annoying telemarketing calls, e-mail spam, and other unwanted marketing.  
• Increases the power and leverage of insurance companies and other big corporations over individuals.  
• Makes it easy for companies called data aggregators to compile huge dossiers of detailed information about American citizens.  
• Allows personal information to be gathered by the government.  Some of the biggest data aggregators are reportedly selling information to the FBI and other government agencies, and after September 11, discussions are reportedly underway within the government to expand the collection of citizens? private information even more.

Gramm-Leach: an anti-privacy law

A big part of the problem is the Gramm-Leach-Bliley Act, which was passed by Congress in 1999.  Although Gramm-Leach has been described as a ?financial privacy law,? it created a very weak privacy standard ? so weak, in fact, that rather than protecting Americans? financial privacy, the law had the effect of ratifying the increasing abandonment of customer privacy by financial companies.

Gramm-Leach effectively gives financial institutions permission to sell their customers' financial data to anyone they choose. That includes:

• Account balances  
• The date, amount, and recipient of credit card charges or checks a customer has written  
• Information about the flow of deposits and withdrawals through an account.  
• The personal details consumers provide when they fill out applications to get a loan, buy insurance, or purchase securities  
• Any other information they posess

There is just one exception to the information a financial company may give out about you: your account number. 

Under Gramm-Leach, you get no privacy unless you file complex paperwork, following a financial institution?s precise instructions before a deadline they set, and repeating the process for each and every financial service provider who may have data about you.  And it is a process that many companies intentionally make difficult and cumbersome; few let consumers ?opt out? of data sharing through a Web site or phone number, or even provide a self-addressed envelope.

The best way to protect your privacy

Fortunately, as the citizens of North Dakota have shown, there is one avenue of hope.  As bad as Gramm-Leach is, it does at least give states the option of passing stronger privacy protections for their citizens.  At the moment only North Dakota, Alaska, Connecticut, Illinois and Vermont have done so, but as citizens realize how little privacy they have left, many more states will soon be following in their footsteps.