American consumers can keep information confidential

May 9, 2001

Free Market Foundation

In one of the largest financial-customer notifications ever, American banks and other financial institutions are mailing information to every customer to clarify how they collect and use financial information and what options customers have with regard to the sharing of this information.

The mail campaign is a result of the Gramm-Leach-Bliley Act of 1999, and by July 1, 2001, every U.S. financial institution must notify customers about its policies and practices regarding non-public personal information.

Customers have the opportunity to “opt out” of any sharing of information with third parties otherwise, their financial institution can use the information within federal regulatory guidelines.

Financial institutions feared they would be required to use the opposite approach, called “opt in,” under which they would have to obtain consumers’ permission to collect and share data, estimating that as many as nine of every 10 people would never respond.

Data collection has advantages to both financial institutions and consumers. For example, without the ability to share information, it would be impossible to provide simple conveniences like one monthly statement consolidating all account information, or the ability to call a toll-free number to check on accounts.

Most consumers trust financial institutions to manage their information responsibly:

According to a 1999 IBM study, Americans think financial companies and health care companies do the best job of protecting customer information (see figure http://www.ncpa.org/ba/ba360/ba360fig1.gif ).

They rated banks ahead of charities, retailers and governments.

Gallup recently found that on the trust question, banks rank higher than all other financial institutions, including finance and insurance companies, online brokerages, stock brokerages, mortgage firms and mutual fund companies.

Customers may still invoke a privacy shield under opt-out. The law allows every consumer each year to choose not to have his or her information shared.

Source: Donald G. Ogilvie (executive vice president, American Bankers Association), Financial Privacy: The Choice Is in the Mail, Brief Analysis No. 360, April 27, 2001, National Center for Policy Analysis.

For text http://www.ncpa.org/ba/ba360/ba360.html

For more on Privacy http://www.ncpa.org/pd/economy/econ2.htmlA