By Jennifer Riley
November 2000 - It's a rare trip to the mailbox that doesn't find solicitations for new credit cards. Now, thanks to new legislation that makes it easier for financial services companies to affiliate, consumers can expect even more junk mail asking them to deposit money in this bank, to buy a policy from that insurance company, or to conduct trades through a certain brokerage firm. Maybe even from the same company.
Passage of the Graham-Leach-Bliley Financial Services Act, signed into law last November, allows banks, brokerages, and insurers to merge or expand, ending a decades-long legal separation among these sectors. The law has paved the way for the sometimes unauthorized sale of consumers' personal information between both affiliated and non-affiliated companies under information-sharing agreements. Although the legislation contains consumer protection provisions, implementation will take time, and enforcement is uncertain.
"Once your bank, insurer, or broker has your name and account information, the potential for abuse will be great," says David Lackey, president of Weiss Ratings Inc. (www.weissratings.com), based in Palm Beach Gardens, Florida. Mr. Lackey's company issues safety ratings on more than 16,000 financial institutions, taking into consideration the ratings of affiliated companies. "There's going to be increased pressure to purchase all products from one institution. If you get your mortgage from Bank of America, for example, there will be pressure to buy insurance from Bank of America as well. They're in a better position to market to you in a timely fashion, and they can imply – although it's illegal – that refusing one service will affect the other."
The blending of banks, insurance companies, and brokerages could lead consumers to falsely apply one company's record of financial stability to an affiliate company with a less impressive record. Since consumers could be lured into making bad decisions, Mr. Lackey recommends precautions.
First, consumers should review the privacy policies of their financial institutions, which the companies are legally required to disclose. They also should shop around and not assume that solicitations from an affiliate offer the best deals. They should utilize such services as Weiss Ratings, Moody's, or Standard & Poor's to verify the security of a financial institution, and with regard to banking products, they should find out which ones are federally insured and which are not. Just because a bank promotes mutual funds doesn't mean those investments, like ordinary savings accounts, are insured by the FDIC (Federal Deposit Insurance Corp.).
Although consumers may benefit from the convenience and the economies of scale created by affiliation, Mr. Lackey urges consumers to do their homework and to see if the benefits outweigh the costs. If you want to protect your privacy, he advises, request a form that lets you opt out of any information-sharing agreements.
Beth Givens, director of the nonprofit consumer education and advocacy group Privacy Rights Clearinghouse, echoes Mr. Lackey's concerns over Graham-Leach-Bliley's potential impact. Her San Diego-based organization (www.privacyrights.org) supported three financial-services privacy rights bills in the California state legislature in the past year. None of them passed.
"We feel that Graham-Leach-Bliley is weak because it does not adequately enable customers to prevent the sharing of their personal information between affiliated companies," she explains. "The three bills that were introduced to protect consumers in California failed because of strong financial-services industry opposition. When you look at the richness of the data that you provide each of these industries and look at how [the reports] can be merged, you can see how a very detailed dossier can be compiled. Decisions about you can be made on the basis of this information – whether you get a loan, whether you can be insured, and at what rate."
She finds services such as Weiss Ratings to be valuable if consumers use them to "weed out those institutions they would not like to share their personal information with." But at a charge of $4.95 per company record, the weeding-out process can be expensive. The Weiss Ratings Web site, however, posts a list of the lowest-ranked banks, insurance companies, and brokerages each quarter at no charge. Mr. Lackey defends the $4.95 per-company charge with the argument that his company is the only one he knows of that does not base its ratings on company-provided information.
So next time your mailbox yields a solicitation for new financial products or services, stop and think about how this company you may never have heard of got your name. And before you fill out any forms, check around and decide how much your privacy is worth.
Privacy and Security Measures for Financial-Service Consumers
-- Obtain your financial institutions' privacy policies.
-- Request forms that allow you to opt out of information-sharing agreements.
-- Employ such services as Weiss Ratings, Moody's, or Standard & Poor's to verify the security of financial institutions before disclosing personal financial information.
-- Resist pressure to purchase all your financial services or products from one institution and its affiliates; determine if separate companies would provide better service or greater security.
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