Sale of Financial Data Starts a Backlash

The banking industry’s recently disclosed practice of selling private financial information about its customers is prompting a political backlash as consumer groups and California lawmakers vow to give bank clients more control over their account numbers, bank records and other data.

Interest in privacy issues heightened earlier this year with the news that many large banks had been selling or releasing customer information to telemarketing firms. To many critics, more alarming than the practice itself is the lack of specific laws to prevent it.

California is expected to take a leading role in defining new legal protections for consumers in the area of financial information, though federal lawmakers also have weighed in on the issue.

The state’s movement, though in its early stages, has already created a battleground for consumer advocates and the banking industry, which worries that the recent high-profile cases of information sharing may be causing an overreaction.

“It’s going to be a busy year,” predicted Jamie Clark, a lobbyist for the California Bankers Assn., an industry trade group.

The first shot in the political battle over financial privacy is expected to be fired next week with the filing of a proposed ballot measure that would give victims of identity fraud new rights.

The measure--which backers hope to get on the November 2000 ballot--is one of several privacy-related efforts currently underway in California that seek to address the public’s growing concern over the release of individuals’ bank records, salaries, Social Security numbers and other financial information, often without their knowledge or permission.

The proposed ballot measure would allow an identity-theft victim to better control the damage to his or her credit after a criminal has impersonated the victim and obtained credit in the victim’s name, said Democratic political strategist Darry Sragow, who is leading the effort. Proponents will begin a signature drive in January to qualify the initiative for the ballot.

The measure also would hold banks, credit card companies and others more accountable for damage stemming from the sale of their customers’ credit card numbers, account numbers or other personal information, Sragow said.

Meanwhile, state Sen. Steve Peace (D-El Cajon) is working on a separate privacy initiative, which he hopes to pass next year as a bill or to put on the statewide ballot. Peace will hold hearings on the legislation, SB 129, early next year.

Though details have not been finalized, the legislation may require banks to get customer approval before releasing confidential data to third-parties; establish a statewide privacy ombudsman; and make it easier for consumers to sue for unauthorized release of information.

A key goal of Peace’s proposal is to strengthen state privacy laws and clarify that the state’s constitutional guarantee to privacy should apply to financial records. Currently, state attorneys complain, the issue is unclear.

In Congress, legislators this month approved modest new protections that require banks to disclose their information-sharing practices and to give consumers the chance to opt out of having their information released in some cases.

But experts predict the privacy debate will take center stage in several state legislatures, particularly California.

“A lot of eyes are going to be on California next year,” said Alan Westin, head of Privacy and American Business, a New Jersey-based think tank. The organization calls privacy a “political winner” for politicians and political groups because it draws bipartisan support and appeals to female voters, and measures to deal with it typically do not require new taxes. States such as New York and Massachusetts are also addressing the issue.

Use of California’s voter initiative process to tackle privacy issues is hardly surprising, given the difficulty that privacy advocates have had in passing new protections.

“The credit industry mounts a ferocious lobbying campaign to maintain the status quo,” said Beth Givens, project director of Privacy Rights Clearinghouse, a consumer organization in San Diego. This year, for example, credit bureaus helped defeat a California bill that would have enabled consumers to receive free copies of their credit reports once a year to check for errors or fraud.

It was a voter initiative in 1972 that successfully amended California’s Constitution to make privacy an inalienable right, along with life, liberty and pursuit of happiness.

“It took an initiative to put that guarantee in place,” said Jon Golinger, consumer program director for the California Public Interest Research Group. “So it makes sense that it would take another initiative to put some teeth in the protection.”

Banking industry groups say they are watching the process closely. But the CBA’s Clark said the group won’t take a formal stance on the proposals until they are more clearly defined.

Proponents of the initiative hope it will enable identity-theft victims to rebuild their lives and credit records faster.

Identify theft occurs when someone fraudulently obtains private information about another individual--such as a Social Security number--and uses it to apply for credit in that person’s name. Such thieves typically run up huge bills and then disappear, leaving their victims to deal with the mess and ruined credit.

This year, that fraud was made a federal crime, punishable by penalties of up to 15 years in prison and a $250,000 fine. Last year, California made identity theft a felony.

The proposed initiative would further broaden the definition of identity theft.

It would also allow identity theft victims to require that banks, credit card companies and others delete their names and personal information from marketing lists. The goal here is to prevent banks from continuing to spread any misinformation about consumers through unsolicited credit card offers and other junk mail.

The measure would also allow a consumer to collect damages from a bank or credit card company that sold his or her account numbers to anyone convicted of a felony who then used the information to victimize the consumer.

This provision specifically responds to the recent disclosure that one California bank, Agoura Hills-based Charter Pacific Bank, sold credit card numbers to someone who had been convicted of a felony and who allegedly used the numbers to run up $46 million in bogus charges. The bank agreed to stop the practice, but the state attorney general said there are no California laws that prohibit such a practice.

Exactly who is backing the initiative remains a mystery. Sragow is a veteran Democratic strategist who led the gubernatorial bids of former Insurance Commissioner John Garamendi and businessman Al Checchi.

Helping to draft the initiative is Ed Howard, formerly an attorney with the Center for Law in the Public Interest. Howard is an expert in the initiative process, having worked on several ballot measures.