Many Banks Giving State Extensive Customer Data


Scores of California banks, thrifts, credit unions and life insurers have begun turning over confidential information about their customers--including account balances and Social Security numbers--to state officials in an effort to comply with a new federal law designed to catch parents who fail to pay child support.

The program, which took effect this spring, requires financial institutions nationwide to help locate so-called deadbeat parents by searching their customer databases every three months for matches against state-provided lists of child-support debtors. If matches are found, the names, account balances and other information must be given to state officials, who can then seize the assets.

But in California, many small community banks and credit unions say they cannot afford the time or the technology necessary to check millions of customer records regularly, and unlike some other states, California is not helping financial institutions shoulder the costs. As a result, about half of the participating institutions are taking advantage of a provision that enables them to simply hand over the names and account balances of all their customers, forcing the state to look for matches itself.

In California--home to some of the nation's toughest laws protecting individual privacy from government intrusion--the new program is raising red flags.

"This is a further impingement on the confidential nature of those records," said Beth Givens, project director of the Privacy Rights Clearinghouse in San Diego. "The option of allowing a bank to provide its entire customer database to the state should never have been allowed."

Though Givens said she is sympathetic to efforts to collect delinquent child support, she worries that the program will compromise the privacy of millions of Californians who have done nothing wrong.

The program comes at a sensitive time in California, where many residents increasingly feel that their financial privacy is under attack. Last month, the state's employment department ditched plans to begin selling confidential salary data about 14 million Californians after it received a flood of complaints. Shortly thereafter, the state's largest banks admitted that they had been selling or disclosing sensitive information about their customers to telemarketing firms.

"The government already has a Big Brother file on everyone," said Ann Kaufman, a bank customer in Rancho Palos Verdes. "They don't need to get any more information."

The goal of the new law--which established the Financial Institution Data Match program--is to stem the rising problem of delinquent child support. In 1998, California parents failed to pay $8.7 billion in court-ordered child support.

Under the data match program, bank account information is sent to the state Franchise Tax Board. Though the tax agency already collects some information about taxpayers' bank accounts, the new program significantly broadens the scope of individual financial information the board receives, and it provides the data on a more timely basis.

Officials at the tax board said they would only use the new information for the purposes of collecting past-due child support. The agency said it will keep the data confidential and vowed not to use it for tax collection purposes, such as verifying tax returns or identifying tax dodgers.

"We deal with all kinds of very personal information already," said Denise Azimi, a spokeswoman for the tax board. "It's very secure, and we could not use it for tax administration purposes."

The law, however, does require the tax board to share the information with local district attorneys who also are working to collect delinquent child support. But Azimi said the tax board would only give the district attorney's offices bank account information about individuals who owe child support and not release the more comprehensive customer lists it receives.

So far, 191 of the state's participating financial institutions are screening their records themselves and 197 are turning over their entire customer databases to the state.

Tax board officials have steadfastly refused to identify which financial institutions are giving their full customer lists to the state.

Though the law protects institutions from being sued by customers for releasing the information to the state, some institutions remain concerned about their liability, according to a June legislative report by the tax board.

Most large banks said they had decided to conduct the searches internally and provide only the matches to the state, citing privacy concerns and fears of a customer backlash.

"It was unacceptable to let the data out of our control," said Kathleen Shilkret, a spokeswoman for Wells Fargo.

Other institutions that said they plan to conduct internal searches were Bank of America, Washington Mutual, Union Bank and City National Bank. Los Angeles-based Imperial Bancorp said it has not decided which method to use.

Smaller institutions are the most likely to turn over their customer lists because they cannot afford the software and manpower needed to search their records internally, said John Stafford, spokesman for the California Banker Assn., a Sacramento-based trade group. "It's an unworkable burden, particularly for small banks," he said.

Cost estimates for complying with the program vary widely. Newport Beach-based Downey Financial Corp., a mid-size thrift, said it will spend $15,000 to develop the software needed to conduct internal searches and $75,000 more annually to comply with the program.

A recent survey of 162 institutions found that development costs ranged from $500 to $10,000 and ongoing costs ranged from $250 to $24,000.

States such as Colorado and Washington are helping to defray costs incurred by institutions, but California declined to provide assistance, despite lobbying by bank groups.

State law specifically prohibits financial institutions from notifying account holders that their names and other information have been forwarded to the state due to a fear that debtors might withdraw the money before the state can put a levy on the account.

As of June 1, the tax board had found 45,000 account matches and placed levies on 8,341 bank accounts, according to the June tax board report. Total collections were $2.7 million.

Once a match is found, the tax board gives the account holder 10 business days to pay the delinquent child support. If the money is not repaid, the tax board may order the financial institution to withdraw the money and send it to the state.

Institutions that do business in several states have the option of providing their information to a federal clearinghouse operated by the Office of Child Support Enforcement. That agency then transfers the data back to individual states. But under this federal provision, institutions are required to search for matches themselves and do not have the option of turning over their entire customer lists.

The names of individuals who owe child support are provided by district attorneys, but the accuracy of that information has been called into question. A Times investigation last fall found that the Los Angeles County district attorney's office had seized bank accounts and pursued collections against men who were later determined not to be the fathers of the children in question. In one instance, a Carson man was imprisoned for 26 hours before it was discovered that he had the same name as a man sought for back child support.


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