January 13, 2003

Anxious Tech Industry
Watching Financial Privacy Debate

Privacy issues in the next Congress are likely to become linked to the financial service industry's desire to avoid regulation by states, and the technology industry must choose whether to fight alongside financial firms.

Several key elements of the Fair Credit Reporting Act need to be reauthorized. The law governs the way data-gatherers utilize consumer credit information, and the 1996 amendments to it pre-empt states from regulating the rights of credit bureaus or banks to share information among the "affiliates" with whom they have business relationships.

Those amendments are set to expire Jan. 1, 2004, and the financial industry does not want to lose them. At a December forum, U.S. Chamber of Commerce President Thomas Donohue said the issue is vital to "the entire business community," and said there would be "extraordinary consequences to our economy should Congress fail to reauthorize FCRA next year."

But banks have stepped gingerly into the debate because they know the legalistic financial privacy notices mandated under the 1999 Gramm-Leach-Bliley Act bothered consumer groups and much of the public. The debate affects technology companies because that model could serve as a precedent for Internet privacy legislation.

In theory, the notices inform consumers of their right to "opt out" of data sharing with unaffiliated companies. Banks accepted the notices because they were less onerous than rules forbidding such information sharing unless customers specifically "opt in" to such a system. Privacy groups won a key concession that granted states the right to pass stricter privacy laws.

Sen. Richard Shelby, R-Ala., who has sought opt-in provisions and states' rights on privacy, became Senate Banking Committee chairman. Although continuing to support stronger state laws, he said in December that he would not oppose federal pre-emption of such laws "if we could pass the opt-in requirement" at the federal level.

That would be a bitter pill for financial institutions. "We have an opportunity to make our case to the administration, to Sen. Shelby, and to [House Financial Services] Chairman Oxley that this is an opportunity to look for federal pre-emption," said Jim Pitts, executive director of the Financial Services Coordinating Council.

"Full opt-in across the board is the minimum that the consumer groups would insist upon," said Ed Mierzwinski, consumer director of the U.S. Public Interest Research Group.