Lawmaker, consumer groups criticize privacy notices

WASHINGTON- With privacy notices becoming mandatory July 1, many consumer groups and at least one lawmaker are bringing their concerns to light about the financial services industry’s privacy notices. The privacy notices are required under Title V of the Gramm-Leach-Bliley, which was signed into law in 1999. Congressman John LaFalce (D-N.Y.), ranking member of the House Financial Services Committee, wrote a letter to Treasury Secretary Paul O’Neill and the federal banking regulators criticizing some institutions’ notices for being jumbled up with marketing materials and lacking clarity. Several Democratic representatives, including Paul Kanjorski (Pa.), Carolyn Maloney (N.Y.), Darlene Hooley (Ore.), Jay Inslee (Wash.), Stephanie Tubbs Jones (Ohio), Barney Frank (Mass.), Maxine Waters (Calif.), Luis Gutierrez (Ill.), Barbara Lee (Calif.), Janice Schakowsky (Ill.), and William Clay (Mo.) also signed onto the letter. “While a number of financial institutions have worked constructively to create effective privacy notices and opt out vehicles, too many others appear to have used the privacy notices to confuse their privacy obligations and engage in inappropriate marketing,” the letter read. LaFalce, and others, noted that many of the privacy notices fail to meet the “clear and conspicuous” standard. He wrote that the notices are often long and complex and printed too small, in seven- or eight-point type. “Congress never intended that privacy notices be of this length and difficulty to read,” he wrote. Several consumer groups, including, U.S. Public Interest Research Group (U.S. PIRG), the Electronic Privacy Information Center, Public Citizen Litigation Group, Privacy Rights Clearinghouse (PRC), and Consumer Federation of America, are making similar points. The organizations have been joined in their battle cry by consumer advocates Ralph Nader and Remar Sutton, who also felt the banks have made notices confusing. According to a PRC “readability consultant” who studied 34 privacy notices, consumers would need three to four years of college to able to comprehend the language used in the notice. The congressman also felt that the importance of the section describing the consumers’ opt out rights was diminished. “Of greatest concern with many of the privacy notices we have read is a general tone that minimizes the importance of the consumer’s opt-out right, and the use of working that appears to thwart Congress’ intent that consumers understand and be able to readily exercise this important right,” LaFalce wrote. Furthermore, he contended, many of the notices read by his office used language to dissuade consumers of opting-out, such as telling them they may have difficultly receiving credit offers and other benefits. “It is one thing to include promotional statements that attempt to explain that personal information may be used to inform the consumer of services that may be of interest,” he wrote. “It is far different to use statements that amount to warnings that the exercise of a statutory right will limit on deprive consumers of future access to credit and financial services.” The concerned consumer groups have launched a Web site, www.privacyrightsnow.com, telling consumers how to “Say No” to financial services information sharing practices. “Notice is not enough,” the consumer groups maintain. U.S. PIRG’s Ed Mierzwinski stated outright that the notices were “purposely deceptive.” According to CUNA Senior Vice President of Government Affairs John McKechnie, the congressmen were absolutely right. “The congressmen make a good point, that the notices are cumbersome and complicated,” he said. This is exactly why Congress and the regulators need to take a “go-slow approach” to privacy, rather than creating new laws already, he said. McKechnie added that this was a “predictable outcome.” NAFCU Regulatory Compliance Attorney Rob Byrer noted that NCUA provided guidance in its regulation, which many credit unions used to write their notices. However, he pointed out, “Most credit unions are not required to offer opt out notices because their sharing practices are so restrictive and protective of members privacy.” NAFCU did not have any specific numbers available regarding exactly how many credit unions had to issue privacy notices. The American Bankers Association (ABA) also stood up in defense of the financial services industry. The ABA issued a statement that they want consumers to read the privacy notices and for them to be clear, but that they also recognize the current notices are not perfect. “It’s important to remember that banks’ notices are legal documents that must comply with a very complex regulation or face possible regulatory action or a lawsuit,” ABA Executive Director of Government Relations Edward Yingling said. “For instance, some critics have complained about the use of the term `non public personal information.’ Banks did not invent this term; the regulation did. The same regulation that defines consumers and customers differently.” He added the industry is willing to work with the regulators to create clearer notices as the process evolves. LaFalce also said that he, too, realized the first attempt at the notices would not produce the best outcome, but he requested that his concerns be taken into account when examining institutions for privacy compliance. [email protected]