Federal Trade Commission Chairman Robert Pitofsky today presented Commission testimony to a House Subcommittee on H.R. 10, the Fair Credit Reporting Act (FCRA) and financial privacy. Pitofsky said the Commission generally supports the privacy provisions of H.R.10. However, he suggested one additional consumer protection: notice and opt-out provisions covering nonaffiliated entities should be extended to affiliated companies.
Pitofsky spoke of the burgeoning information economy that has made it possible for businesses to collect, aggregate, store, and market personal information in ways unthinkable only a generation ago. "The commercial use of this information can have great benefits for consumers and industry by allowing more cost-effective marketing systems," he said. "At the same time, it raises concerns because of the speed and ease with which vast amounts of sensitive information can be aggregated and disseminated. ... As custodians of sensitive financial information, financial institutions must take their customers' privacy concerns into account."
The testimony outlines laws that protect financial information, such as the FCRA and notes the Commission's extensive experience in dealing with privacy and consumer protection issues related to the financial services industry. The agency has addressed issues involving the use of credit cards, lending practices, and debt collection as well as online privacy issues the testimony states. It points out that the Commission's authority over banks, other depository institutions and insurers is limited to the extent they are regulated by federal bank or state insurance regulatory agencies.
According to the testimony, the Commission suggests that H.R. 10's privacy protections requiring notice and opt-out before personal financial information is disclosed to nonaffiliated entities be extended to cover the disclosure of such information among affiliated entities. This extension makes sense, Pitofsky said, because consumers likely view different companies as separate entities, and are largely unaware of the fact or consequences of common ownership.
"Thus, the distinction between the disclosure of personal financial information to an affiliated entity versus disclosure to a nonaffiliated one is not likely to be significant to consumers or to affect consumers' privacy interests in the underlying information," he said.
"In sum," Pitofsky said, "consumers should have the right to know about, and prevent if they so choose, transfers of sensitive personal financial data to any third parties, affiliated or non-affiliated."
In conclusion the Commission said, "It is clear that financial modernization can bring great benefits to consumers. It is also clear that consumers are extremely concerned about the privacy of their sensitive financial information. At the same time, the provision of financial services is dependent upon efficient, fair and accurate reporting of consumer credit information. ... The Commission is pleased to serve as a resource as this Subcommittee and others consider how to strike the proper balance between these important competing interests."
The Commission vote to authorize the testimony was 3-1 with Commissioner Orson Swindle dissenting. In his dissenting statement Commissioner Swindle said, "There must be a careful balance between protecting privacy and allowing information-sharing when necessary to serve customers and to preserve the benefits of financial services deregulation. ... Acting without the facts does not serve the public interest and, in the extreme, could impede economic growth, increase the cost of services to consumers, and even negate the intention of H.R. 10 ... The Congress would have been well served had the Commission pointed out the heightened privacy concerns likely created by deregulation, steered clear of a blanket recommendation to impose restrictions on affiliate information-sharing, supported the study that H.R. 10 would require, and suggested that Congress may wish to expedite completion of such a study before taking final action on H.R. 10."
Copies of the testimony are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
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(FTC File No. 046555)